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For renewals after Nov. 15, 2012, LMCIT began calculating liability premiums in a new way. The new rating system is designed both to be much simpler than the old 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.
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 have shifted 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 meant some members’ liability premiums went up and some went down. Keep in mind that besides the rating system change, a city’s renewal premium is also affected by other factors, including any changes in the city’s expenditures or other rate factors, and any changes in the city’s experience rating because of the city’s losses.
For the second year of transition to the new rating method, for renewals effective Nov. 15, 2013 and after, adjustments were made to the relative levels of the five rates that make up the new liability rating system. Those changes are partly because of changes in the loss patterns and partly because the actual expenditures, numbers of FTEs, and numbers of police officers that cities reported turned out to be different from what we had estimated they would be. These changes affect each city differently, but the effects will generally be fairly modest.
You can call your underwriter at (651) 281-1240 or (800) 925-1122 if you have further questions, or to let us know what you think about the changes.
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