New Liability Rating System

LMCIT Liability Premiums Will Soon Be Calculated in a New Way

For renewals after Nov. 15, 2012, LMCIT will begin calculating liability premiums in a new way. The new rating system is designed both to be much simpler than the current system and also to do a better job of allocating premium costs equitably among LMCIT’s members.

The new system uses just five key factors—number of households, number of sewer connections, number of city employees, number of police officers, and overall city expenditures. By comparison, under the old system cities had to provide several dozen pieces of data, some of which required the city to do some complex and confusing calculations.

This change only affects premium rating for municipal liability and auto liability. Property premiums are not affected.

Fair as well as simple
The new system is also designed to do a better job of allocating premium costs in a way that’s consistent with where the liability losses come from. For example, police operations, not surprisingly, generate a significant number of liability claims with significant costs. Utilities operations, on the other hand, typically don’t produce much in the way of liability claims. The new system does a better job of distinguishing those risks and aligning the premiums with the actual loss patterns. As a result, premium costs will tend to shift toward cities with police operations and away from cities with extensive utility operations.

That’s not to say that the old system was inaccurate. It actually worked reasonably well. But the new system is designed to do an even better job of accurately allocating premium costs in accordance with risks.

Individual cities, individual outcomes
The switch to the new system will mean that some members’ liability premiums will go up and some will go down. Without doing the actual calculations, though, it’s nearly impossible to predict how the change will affect an individual city. If it’s helpful for budgeting purposes, LMCIT staff will be glad to do a preliminary calculation of your city’s renewal premiums.

Keep in mind, too, that besides the rating system change, the city’s renewal premium is also affected by other factors, including:

  • Any changes in the city’s expenditures or other rate factors.
  • Any changes in the city’s experience rating because of the city’s losses.
  • The change, if any, in LMCIT’s overall rate levels for the coming year.

LMCIT staff don’t yet know what the overall rate level will be for next year, but they are cautiously optimistic at this point that they’ll be able to keep the rate level close to flat or maybe even decrease it a bit.

Update (10/31/12)
Rates used in preliminary calculations made prior to November have changed slightly.

As we’ve worked through recommendations for overall rate levels, we’ve also identified a need to adjust the rate relativities between the five key liability factors. (number of households, number of sewer connections, number of city employees, number of police officers, and overall city expenditures.) This adjustment is being made to allocate premium costs as closely as possible with actual loss costs. Loss patterns were appreciably different when the relativities were first established for the testing phase.

View FAQs document for more details (pdf)

You can call your underwriter at (651) 281-1240 or (800) 925-1122 to get a better idea of how your city will be affected, if you have further questions, or to let us know what you think about the changes.

Read the current issue of the Cities Bulletin