Insurance switch could save Buffalo Grove $120,000 a year

Buffalo Grove trustees are evaluating whether the village should seek its liability insurance in the private market instead of a risk-sharing pool with dozens of other northeastern Illinois municipalities, a move village officials believe could save up to $600,000 over five years.

Village Manager Dane Bragg said the village has solicited quotes from broker Arthur J. Gallagher & Co. and is working with consultant Michael Nugent to explore its options.

The village board voted in March to send a notice of withdrawal to the Intergovernmental Risk Management Agency, a pool of about 70 local municipalities and special service districts that jointly manage and fund their property, casualty and workers' compensation claims. Trustees, who have until July 26 to rescind the notice, are expected to decide their next move at their July 18 board meeting.

Finance Director Scott Anderson said the inclination to leave IRMA is due in large measure to the way the agency calculates premiums based on the village's revenues over a five-year period.

Although that model served the village well in the past, Anderson said it is incompatible with the village's new approach to its general operating fund, which focuses on containing costs and consolidating services while growing revenue and building reserves.

"Under this type of a system, there is a (premium) cost essentially for each new dollar of revenue we bring in," he said. "If that new money supports new services, that makes absolute sense from a risk standpoint."

But the village is not doing that, Anderson said. Instead it's lowering expenses and building up revenues.

"So our liability really shouldn't be going with those new revenues," he said, adding that the village is taking on new sales tax generators that will not require additional services or bring in new assets that will need to be insured.

"So we're going to essentially pay a penalty on those new sales tax dollars," he said.

Trustee Steven Trilling asked Bragg about the possibility of sudden and dramatic cost increases in the private market.

Bragg said the village's consultant has indicated that weather- and terrorism-related issues are now the major drivers of increases.

"His opinion was that really the commercial insurance market has a much better handle on asset values now than they did at the time of 9/11," he said.