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ADOPT A RESOLUTION WITH FINDINGS THAT JUSTIFY AND SUPPORT AN EXCEPTION TO THE COMPETITIVE BID PROCESS AND AUTHORIZE THE EXPANSION OF THE CITY OF STOCKTON'S PARTICIPATION IN THE JOINT POWERS AUTHORITY EXCESS RISK POOL, PUBLIC RISK INNOVATION, SOLUTIONS, AND MANAGEMENT (PRISM)
recommended action
RECOMMENDATION
It is recommended that City Council adopt a resolution to:
1. Approve findings that justify and support an exception to the competitive bidding process pursuant to Stockton Municipal Code 3.68.070(A)(5), for cooperative purchasing agreements.
2. Authorize the City to expand participation in a Joint Powers Agreement with PRISM (Attachment A), without limitation, allowing the City of Stockton to participate in additional insurance programs such as: Excess Liability (General Liability and optional Excess Liability) (Attachment B), Primary Cyber Liability, Property (Attachment C), and Crime. (Primary Cyber and Crime do not require Memoranda of Understanding since they are not major programs.)
3. Authorize the City Manager to execute Memoranda of Understanding for the additional programs described above.
It is also recommended that the City Manager be authorized to take appropriate and necessary actions to carry out the purpose and intent of this resolution.
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Summary
Risk Pools are Joint Powers Authorities (JPA) formed by public entities to pool their funds and obtain Excess (Stop Loss) coverage for the members. Two (2) of these JPAs are California Joint Powers Risk Management Authority (CJPRMA) and Public Risk Innovation, Solutions, and Management (PRISM). The City is a member of both pools. CJPRMA is a smaller Risk Pool and more sensitive to losses from its larger members, the City being one (1) of those larger members. The CJPRMA Board of Directors has voted to expel the City from the Risk Pool, leaving the City without several coverages when the policies expire on June 30, 2025. PRISM is the largest Risk Pool serving public entities in California and large enough to absorb the severity and frequency of losses associated with large cities such as Stockton. Staff have worked with PRISM and received approval for the City to transition those coverages currently with CJPRMA to PRISM.
DISCUSSION
Background
The City has been self-insured since 1979, covering the cost of its smaller claims out of the general fund, and purchasing Excess (Stop Loss) coverage through CJPRMA and PRISM. The City has outgrown one (1) of its current excess liability risk pools, CJPRMA. The City passed a resolution to become a member of CJPRMA on April 8, 1986, but due to current trends such as “social inflation”, an increasing litigious society, nuclear verdicts, and reptile theory tactics, the City’s severity and frequency of losses has exceeded CJPRMA’s loss ratio threshold of 100% for three (3) years in a row. The loss ratio measures the relationship between the total losses to premiums. When the loss ratio is over 100% it indicates the risk pool is paying out more in losses than it is gaining in premiums. In other words, the losses are directly impacting the pool’s financial stability and its other eighteen (18) public entity members. CJPRMA Board Policy required that the City be recommended for expulsion based on this continuing loss ratio. CJPRMA’s Board voted to expel the City effective June 30, 2025.
Present Situation
On August 15, 2024, CJPRMA’s Board unanimously voted to expel the City effective June 30, 2025. PRISM, made up of over 350-member public entities, which includes over 2,050 sub-member public entities, is more suited to handle the severity and frequency of the City’s claims. In addition, PRISM has in-house staff dedicated to providing professional support to the City including, but not limited to, underwriters, analysts, risk control specialists, and training.
Currently, the City participates in excess workers’ compensation, employee health (life and disability) benefits, dental, aircraft, and airport programs with PRISM, and became a member on June 26, 2007, when it was known as CSAC-EIA. Staff intend to bind coverages through PRISM for the programs the City currently has through CJPRMA: excess liability (general liability and optional excess liability), primary cyber liability, property, and crime.
Should City Council approve the resolution to expand participation with PRISM, allowing the City to participate in additional programs of coverage, staff will ensure there is no gap in the expiring coverages currently carried by CJPRMA.
Findings
Stockton Municipal Code Section 3.68.070(A)(5) provides an exception to the competitive bidding process for contracts over one-hundred thousand dollars ($100,000) where the City Council adopts findings which justify and support the exception. The following findings justify and support an exception:
1. Cooperative agreements qualify as an exception to the City’s competitive bidding process as outlined in City Municipal Code §3.68.070(A)(5) and City Policy 17.05.050, specifically: “Cooperative purchasing agreements authorized by the City Council for purchase of supplies or services through other governmental jurisdictions or public agencies.”
2. Cooperative purchasing agreement enable the City to utilize the terms and conditions of a competitively solicited and negotiated cooperative purchasing agreement.
3. A cooperative agreement with PRISM will meet the City’s procurement and business needs by providing continuity of service in a bigger risk pool.
4. A JPA is a formal, legal agreement between two (2) or more public agencies that share a common power and want to jointly implement programs, build facilities, or deliver services. Officials from those public agencies formally approve a cooperative arrangement to jointly negotiate these services and other programs.
5. The use of cooperative contracts improve time, efficiency, and enable the City to acquire products of equal or superior quality, along with value added services, at competitive consortium-negotiated pricing.
FINANCIAL SUMMARY
Premiums for FY 24/25 from CJPRMA totaled $8.7 million with an expected 30% increase for FY 25/26, or $11.3 million. PRISM has provided conservative indications at $14.8 for the same programs, or a $3.5 million increase. This increase is expected due to PRISM’s larger size and loss capacity. This increase will also bring the City’s loss ratio down to a manageable level.
In addition, PRISM is requiring the City raise its General Liability Self-Insured Retention (SIR) from $1.5 million to $3 million, increasing the amount of liability the City retains. The City’s actuary, Aon Risk Insurance Services West, Inc., predicts that this could increase retained losses by $1.5 - $2.0 million.
A conservative estimate is for a total increase in costs of $5 - $5.5 million for FY 25/26.
Attachment A - JPA 2020 Final PRISM Agreement
Attachment B - MOU General Liability Program 2
Attachment C - MOU Property Program