Municipalities and schools have been fleeing a state-run insurance fund Gov. Scott Walker wants to kill, spooked by his 2015 attempt to wipe out the program and a more than 70-percent rate hike to shore up the sagging fund, according to a WisPolitics.com review.
Local governments persuaded lawmakers two years ago to save the Local Government Property Insurance Fund, fearing the guv’s proposal to start phasing out the program just five months after his budget was introduced would leave them without an affordable option for coverage. But representatives for counties and cities questioned whether anyone would put up a fight this time around after Walker included a similar provision in the 2017-19 budget.
For one, there’s not much left to fight over.
In 2014-15, the Local Government Insurance Fund covered nearly $50.9 billion in property held by municipalities, schools and others. That dropped to $1.6 billion in early February. Along the way, the number of government entities buying coverage through the fund has dropped from 955 in 2015 to 147 as of July 1, according to the Office of the Commissioner of Insurance.
Jerry Deschane, executive director of the League of Wisconsin Municipalities, said the exodus spiked when municipalities, including his members, decided to create their own insurance options rather than wait around for the state fund’s demise.
“The one thing you look for in insurance is stability,” Deschane said. “In order to provide stability, we went out and created our own.”
The original version of the fund was created in 1911, when municipalities, schools and library boards had a tough time finding reasonably priced coverage in the private sector. But in again calling for its closure, the Walker administration argued that situation no longer exists and there’s a wide array of affordable options in the insurance market today.
His plan calls for offering no new policies after July 1 and no renewals after Dec. 31. All claims would have to be filed no later than July 1, 2019, otherwise they wouldn’t be covered. Any remaining money in the fund would be distributed to the local government units that were insured as of July 1.
The Kenosha Unified School District has stuck with the fund, and its premium of $355,325 is the largest this year, according to the records from OCI.
But Chief Financial Officer Tarik Hamdan said the district is now putting out requests for proposal to switch its coverage to another provider believing it’s likely the fund will be eliminated sooner or later.
The district’s premium jumped from about $261,000 in 2014-15 to $408,000 in 2015-16, he said. But it dropped back down to $355,325 this year to cover $703.2 million in district property. While the district premiums have increased, Hamdan said it was in line with what he saw in the private sector. What’s more, the district got a $10,000 deductible with its state policy, which he said would be a challenge to match through private insurance.
“We’ve had a good experience with the fund, so it’s sad to see it dying,” he said.
For the Iowa-Grant District, the fund has been the best deal it’s been able to find so far. Administrator Linda Erickson said the high school is 5.4 miles from its designated fire department, which puts it 0.4 miles outside of the range required to qualify for lower risk pools in the private sector.
The district looked at the private market two years ago and the best bid it got was about $30,000 more than the $47,000 premium it was paying at the time.
Erickson said the district is again looking for private insurance. But unless it builds a water tower on site, which she said would be cost prohibitive, it is considered a nine, on the higher end of the risk scale for coverage.
“There are some insurance companies that won’t even give you a quote if you are in a category of nine or 10,” she said.
The fund had a net position of minus-$3.7 million as of June 30. But just eight years ago, the fund was so flush after its net position hit $41.2 million that the Legislature considered creating a “premium holiday” for participants. In response, OCI declared a one-time $12 million dividend. But that was followed by significant losses in the next three years between claims that were submitted and other expenses that significantly exceeded premiums and other revenues.
That includes a run of fire- and weather-related claims over that period, including a fire at the Milwaukee County Courthouse in July 2013.
The losses hit a high of $30.8 million in 2013-14, according to a Legislative Audit Bureau report from fall 2015, and OCI implemented a series of premium hikes to shore up the fund.
The overall rate increases were 4.9 percent in 2011, 13 percent in 2012, 13.7 percent in 2013, 11.9 percent 2014 and 73.4 percent in 2015.
Joint Finance Co-Chair John Nygren, an insurance agent, called in January for an end to the program. In addition to believing there are viable options in the private sector, Nygren noted the fund can be a drain on state resources. Under state law, if it’s short of the money needed to cover claims, it pulls money from the general fund. According to OCI, the program currently owes the general fund more than $16 million.
Nygren also successfully pushed legislation in 2015 ensuring the Local Government Property Insurance Fund is subjected to the same rate standards that private insurance carriers face. It also allows OCI to levy an assessment on policyholders if there is not an adequate balance in the fund.
“There might have been a time when this made sense,” Nygren said. “But between the private sector and the associations creating their own funds, it’s time to get out of this business.”
Along with the insured value and number of participants, the fund has seen other dramatic dropoffs:
*$28.1 million in premiums were collected in 2014-15; OCI said it collected $4.4 million in 2015-16;
*claims payments dropped from $43.9 million in 2014-15 to $11.1 million in 2015-16;
*the fund covered 68 of Wisconsin’s 72 counties in 2014-15, but that dropped to just three in the current fiscal year; over the same period, it went from 126 cities to just one, Glenwood City, which has a population of about 1,200.
State Sen. Jerry Petrowski, R-Marathon, helped lead the charge to preserve the fund two years ago after local government officials contacted him, fearful the proposal would leave them without an affordable option. Since Walker re-introduced the proposal, Petrowski hasn’t received a single call. Still, he said keeping the program in place two years ago made sense.
“I think it gave enough time for people to transition to another thing,” Petrowski said. “I think a lot of them felt this was coming, and I think that’s why you’ve seen that dramatic shift.”
That includes the movement toward municipalities creating their own options. The Wisconsin Municipal Mutual Insurance Co., Cities and Villages Mutual Insurance Co. and The League of Wisconsin Municipal Mutual Insurance combined to create the Municipal Property Insurance Corp. in 2015. The new corporation provides property insurance for local governments.
Executive Director Mark O’Connell said the Wisconsin Counties Association has offered various insurance services to members since the 1980s and property insurance for more than a decade. But after the guv’s 2015-17 budget proposal and the rate increase, members took a greater interest.
He said 29 counties purchased coverage through the group’s offerings, while others went to self-insurance or the private market.
O’Connell said local governments got the message with the rate increases seen in recent years and OCI sending a message that if the program continued, premiums would better match the cost of the services being offered.
“Those words mean, ‘Look, we’re going to be competitive with the market place, and you’re not going to get a better deal here,’” O’Connell said.
