P&C questions for my town government

I’m on my town’s finance committee. What questions should I ask about our P&C insurance and its cost?

For background, I’m a (former) pension actuary. The committee I’m on is a lot like a City Council. We review and approve the budgets. I’ve been tasked with reviewing all the insurance budgets.

So far the only thing I know about our P&C budget is that it’s $1.1M for a town of about 20,000 people – total town budget about $120M.
I also know the P&C budget is going up 12% this year.

Can you help me figure out what to ask about P&C? I’ll start with things like

  • Coverage and limits
  • How much of the budget is Workers Comp vs buildings vs other
  • Do we self insure any?
  • How often do we go out to bid for our coverage?

For example, for the employee benefits I’m asking things like:

  • How much of the health insurance cost is for expected claims next year and how much is for a change in reserves?
  • How many active and retirees over 65 are not on Medicare? Why?
  • What is our medical stop loss coverage? How often does that go out to bid?


My past life had me supporting a P&C public entities program.

Some questions to ask from the P&C side are:

  • Self-insured retention vs. deductible for both liability and property coverages? Are you comfortable with the retention level? Would it be worth electing a higher retention for reduced premium?
  • Is it one set of policies for the town, or are schools and fire department / paramedics broken out into their own policies?
  • Does your town have a jail / holding facility, and what are the implications on liability coverage?
  • Is coverage coming from a pool or conventional carriers? (Pools are generally cheaper, but service and financial strength can sometimes leave a lot to be desired.)
  • For the main P&C contract, does the carrier have any risk management services or training courses available that the town might find useful (could be online on-demand classes, or for larger accounts a risk management specialist might come out, review policies, perhaps teach a class…)?
  • What does the liability carrier do to protect the application of any statutory immunity the municipality might have (varies by state)?
  • Do you have auto liability coverage out-of-state and is it needed? (In most states, the answer to the first question is “yes”, but I did get asked to discretely price “out of state” coverage a few times).
  • How has your loss experience been vs. expectations?
  • How has applicable town staff found claims service? Is there anything that needs to be improved on the insurers’ side or the town’s side?
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Thanks a lot. I understood most of that.

We get our insurance from MIIA. Looks like it’s a nonprofit for Massachusetts cities and towns.

“Self-insured retention vs. deductible” Are you saying I should ask about one vs the other? I don’t totally get the difference and 2 minutes of googling doesn’t help. I do understand your point about increasing our retention (I think)

Can you explain about out-of-state auto liability? Do you mean we would get a lower rate if the town’s vehicles aren’t driven out of state? We’re about 45 minutes from Rhode Island, so I’m guessing some cars would go out of state, but fire trucks etc wouldn’t. Can we designate specific cars to be the out of state ones?

We have a jail but the longest we hold anyone is Friday night - Monday morning (or maybe a 3 day weekend) dont know if that gives us less liability than a longer term jail.

One key difference is when the insurer steps in to adjust a claim.

“Deductible” means that for a covered loss, you’ll pay the “first $k” dollars of the claim.

“Self-insured retention” generally means that you have to pay $k of losses before the insurer steps in to “help adjust” a claim.

What’s not clearly visible is the costs associated with adjusting the claim: the cost for someone to do the investigation of the claim which might also include legal fees. Things are likely to be very different for public entities (which I do not have direct experience) vs. personal lines insurance (like homeowners and/or auto; which I do have direct experience) vs. small business insurance (which I also have experience).

With the deductible, the insurer is covering that cost of loss adjustment–and usually doesn’t apply toward the limits of coverage. With the self-insured retention, you are on the hook for paying those costs. So the question regarding these two scenarios is what experience is available to the town to adjust the claims and at what cost.

You might also ask about claim activity (both first party and third party) over the last 5 years. And be sure that you get all third party claims even if the city didn’t pay them.

Regarding the pool - that will most likely be the most economic option for your town. It doesn’t hurt to ask about alternatives, or to inquire about their solvency. Someone familiar with regular P&C insurance, but unfamiliar with public entity pools, would turn green at the capital levels supporting the pools Many of the pools reinsure their exposure, which helps, but when I first looked at assuming pool risk…it was educational. (We didn’t normally try to compete against the pools, because of their cost advantages and their not needing to generate profit.)

SIR vs deductible - the two practical differences for liability from the insured’s perspective are cash flows and claims handling.

If you have a deductible, the insurer does all the work, bills you for deductibles, and perhaps requires a letter of credit or collateral to reduce their exposure to credit risk from you.

If you have an SIR, you handle the small claims (e.g. fender-benders, plow vs mailbox incidents), or contract with a TPA to handle those claims. You notify the insurer when claims reach a certain size, and the insurer becomes involved when there’s a risk of exceeding the retention.

IME $25-$50k retentions are where SIRs start to make more sense than deductibles for auto liability / general liability / professional liability. However for your sized town, you’re probably looking at a deductible of no more than 10k. An SIR might not even be an option from the pool.

(Disclaimer - I don’t have public entity experience with Mass, since that is a state where pools are dominant. I might have looked at assuming pool risk there once…)

Re auto liability: probably not a consideration for you, but in a couple of states, statutory immunity is so strong that governments don’t normally get auto BI/PD coverage. However, when they do that, they either cannot take their vehicles out of state (statutory immunity won’t apply across a state line), or they will buy auto liability coverage for the out of state risk. I don’t think that’s a factor in Mass…but I am not certain.

(Public entity P&C insurance practices vary considerably from state to state, and are heavily influenced by custom, sometimes in ways frustrating to the actuaries pricing the products.)

Re jail exposure - I mention it because jail exposure is one of the ugliest parts of the public entities P&C segment. (Coverage for schools is also gnarly. I hate school sexual abuse claims, and rebuilding schools after a total property loss is hell from the insurer’s side.) Hopefully things have improved since I rotated away from public entities, but…

One more point to educate yourself on - which liability coverages are on a claims-made basis, and which are on an occurrence basis. You probably don’t have the option to pick and choose, since tradition and carrier offerings will drive the decision. If you move claims-made coverage to a different carrier, or in the extremely unlikely event you switch a coverage between occurrence and claims-made, ask about potential coverage gaps. The broker will probably be on top of that, but better safe than sorry.

Law enforcement liability in general for Public Entities is pretty ugly, or at least it was last time I was involved. I don’t imagine that’s improved lately.

That’s been my experience as well, but jail/holding cell exposure was the worst part of it.

My underwriters occasionally suggested that some smaller towns with jails start contracting with their counties for jail services. But that’s not a suggestion that was always well-received, and in most of Mass it’s probably not even an option.

We move ours to the county the next weekday, partly because we don’t have a kitchen. The officers just ask you what you want them to pick up from Burger King, pretty sweet deal. So most stays are overnight or over the weekend.

Can improved practices help with the jail underwriting?

Exposure to law enforcement liability claims can certainly be reduced by following best practices. Will they actually be followed by officers in the field is the key question. I see your pool offers some “Best Practices” papers on a number of topics, including law enforcement liability.

ask about cyber coverage and how it would respond in the event of an attack.

ask for benchmarks and a summary of data from the consultant’s list of similar clients, not just a hand wave of “these are good”.

ask if there are additional coverages/limits you should be considering.

Any comments on Worker’s Comp? I’m pretty ignorant about that.

Can you explain what you mean by benchmarks? Data for what?

I believe we get our P&C insurance from a pool of Massachusetts communities, if that changes things: https://www.emiia.org/

Are the last two points about cyber coverage, or in general?


Given the nature of strict liability of the employer for injuries of employees while employed, I would look into this as well. IIRC, many of the options that would be available for CGL are also available for WC (e.g., deductible vs. self-insured retention).

You might also ask about Commercial Liability Umbrella coverage as well.

Just to add on the worker’s comp front, don’t be surprised if a different carrier has that policy from the rest of the P&C. There are a couple of comp carriers that specialize in that segment, and the pools typically don’t play there.

I would ask which departments are having the most claims, where department means police, fire, schools, etc., and how the claims compare to the premium allocated to each department. In a sense each department is buying insurance from the town. This might suggest where loss control is needed.