Citing Numerous Benefits, City Decides to Join Risk-Pool Plan For Municipal Insurance

The Pasadena City Council on Monday unanimously approved a resolution under which the city will join a “risk pool” provider called Public Risk Innovation, Solutions, and Management —PRISM — for general and excess municipal liability insurance.

The coverage, with a price tag of $1.97 million, would take effect July 1 and run through July 1, 2021.

The move puts Pasadena in a pool with 55 of California’s 58 counties, as well as with 295 public entities such as cities, special districts, schools, courts and smaller joint-powers authorities.

It also marks a return to a risk-pool plan after eight years of the city purchasing “stand-alone” coverage by itself.

The change was sparked by a variety of cost and coverage advantages, according to a city staff report.

“For many years prior to 2012, the city purchased general and excess municipal liability insurance as part of a group purchase with other cities,’’ the staff report said.

“Alliant was the city’s insurance broker during that time. At the end of 2012, the city’s claims coordinator released a Request for Proposals (RFP) through the Finance Department for insurance brokerage services. Arthur J. Gallagher was selected as the new broker of record and began placing stand-alone coverage for the city’s liability program.’’

But at the end of 2019, the report said, “The city’s risk and insurance administrator released a new RFP for the same services. City Council awarded the contract to Alliant in January 2020. Alliant’s proposal included risk-pool options for the city and it was agreed that Alliant would pursue such options as part of the FY 21 insurance renewals.’’

According to the city staff report, PRISM will allow the city to retain its current terms of a $5 million self-insured retention (SIR), as opposed to increasing its law-enforcement SIR to $7.5 million under the stand-alone option.

The report said the premium amount is $6,967 less than the stand-alone option.

According to the report, since risk exposures among PRISM members are diverse, risk would be spread more evenly throughout the organization. The city also will benefit from risk-management offerings not found in its current stand-alone coverage, the report said.

The item had actually come before the council last week, but members delayed action, asking for more information on PRISM’s financial stability, ability to pay significant and multi-claim losses, and whether there are potential risks for the city arising from actions of other risk-pool members.

After reviewing the stand-alone and PRISM options, city staff recommended the council go with PRISM.

“PRISM will allow the city to retain its current terms of a $5M SIR, albeit with a $1M corridor deductible, and limits of $25M, as opposed to increasing its law enforcement SIR to $7.5M which would occur with the stand-alone option,’’ the staff report said.

The report went on to say: “Staff considered several factors when exploring PRISM as an option for the City’s (Fiscal Year 2021) general liability coverage. PRISM’s deliberate and steady expansion from 1979 to date shows its longevity, financial growth, and stability.’’

The fact that the city can go in another direction in a year was also a selling point for PRISM, according to the report.

“PRISM lacks limitations that are part of other risk-sharing pools — no three-year commitment, the city’s ability to retain control over its liability claims administration, the city’s ability to use its own defense counsel, etc.,’’ the report said.

“In response to the questions about impact to Pasadena if other members have excessive claims, the city would not be directly responsible for contributing to those members’ claims or payouts. However, the city’s contribution could be larger in future years due to significant or mass payouts for members in general.’’

But countering that, the report said, “Since PRISM does not require a multi-year commitment, staff can reassess whether PRISM is still the city’s most worthwhile option year to year just as it does during every insurance renewal cycle.’’