It was a disaster for many towns and villages, but Tropical Storm Irene was not a financial disaster for the largest municipal insurance provider in the state.
The Vermont Leagues of Cities and Towns (VLCT), the largest municipal insurance provider in the state, has a strong and stable organization — even after having paid what will amount to $10 million to $14 million in insurance claims to about 60 communities, said Ken Canning, director of risk management services at VLCT. Some of the impact of the storm is reflected in higher premiums in 2013.
VLCT insures about 95 percent of the municipalities in Vermont through its Property and Casualty Intermunicipal Fund, (PCIF). PCIF is a self-insurance fund of about $20 million. The policies cover items such as property damage due to flooding, earthquakes and lightning strikes, or legal fees for town liability.
Of the more than $10 million that VLCT paid out in claims, only $500,000 was taken from the fund, the rest was covered by reinsurance that VLCT buys from other providers, Canning said.
“Very few claims pierce the $500,000 reinsurance threshold,” he said. “The reinsurers are a financial backstop in the event that a claim exceeds $500,000.”
VLCT is owned by its members, and the self-insurance fund makes it easier for towns to receive instant financial support, for example during disasters like Irene, he said. Many of the towns say they received money the same week that the storm hit two years ago.
By maxing out on its reinsurance, VLCT saw its rates surge by about 50 percent in 2012. VLCT absorbed the cost of the increase and did not pass it on to its members in the form of higher premiums, Canning said. But for 2013, some of those increased costs were part of a rise in premiums for Vermont towns.
“There is a one-year lag in claims affecting the experience,” he said. “So Irene claims were not taken into consideration until 2013.”
The state Department of Financial Regulation requires VCLT, just like traditional insurance companies, to hold funds in reserve, called net assets, to protect against catastrophes and other uncertainties. These net assets were used to absorb most of the increased costs of reinsurance premiums, Canning said.
Exactly how much is difficult to say, as every member’s rate is set by individual formulas, where a range of factors are considered, Canning said.
Members saw a total increase of 8 percent in their PCIF premiums for 2013, and the cost for Irene reinsurance is a part of that increase, but not all of it, Canning said.
“We’re owned by our members,” Canning said. “And we want to make things as easy and at as low cost as possible.”
Of more than 330 members, 62 put in insurance claims for damage to a total of 147 municipal buildings, primarily in the central and southern parts of the state, Canning said.
For the town of Wilmington, which was especially hard-hit by Irene, the insurance premium increased by $14,000 for 2013, compared to a $5,000 increase in 2012. The municipality now pays $89,000 a year, said Scott Murphy, Wilmington’s town manager.
VLCT paid out more than $1.1 million to the town after Irene. Among the property that had claims were the library, firehouse, police station, town clerk’s office and memorial homes.
Murphy says he hasn’t got an explanation from the VLCT on why the rates have gone up so much, but he assumes it’s because of Irene.
“Insurance is complicated, and when I say we have not increased the rates, we have not increased the property rates,” Canning said.
The insurance provider looks at a range of things when finalizing rates. For example, if property value has gone up, if population has increased and if the municipality has new added property that needs to be insured, Canning said.
Waterbury, another hard-hit town, also experienced an increase in premiums for 2012 and 2013, but Town Manager William Shepeluk is not too concerned with the increase.
“I don’t know all the ins and outs,” he said. “The premium is always going to go up for these kinds of things and the rise in 2013 wasn’t specifically drastic.”
For 2013, the town paid about $45,000 in insurance premiums to VLCT, an 18 percent rise compared to approximately $38,000 in 2011.
“We understand that all of that increase was not because of Irene,” Shepeluk said. “We had new property, we bought new police cruisers and the value of property has gone up.”
VLCT gave the Town of Waterbury an advance of $200,000 in the first week after the storm for instant repairs and cleanup, he said. And the municipality is still using some of that money for Irene-related claims.
Instead of sending back money when the first claims were being sorted, VLCT told Waterbury to keep the restoring money, about $50,000, and send reports of new claims as they came in. The town is using that money for repair work. This summer, the town is finishing up painting the sewage treatment plant that was severely damaged by the storm, Shepeluk said.
“If there is money left when everything is done, we will pay it back, of course,” he said.
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