Gardena moved closer this week to establishing its own insurance company after a consultant reported that the idea is feasible.
The actual incorporation of the company is about a year away, City Manager Ken Landau said. At first the company would be able to provide only liability insurance for the city and other public agencies, but eventually the city hopes to provide insurance for homes and automobiles.
"This is going to happen," Councilman Mas Fukai, the leading proponent of the city insurance company, said in an interview. "I have to believe that all 84 cities in the county are going to want to be a part of this."
On Tuesday, the City Council:
Approved in concept a plan to finance the company.
Approved an interim agreement with Doctors' Management Co. of Santa Monica, an insurance management firm, to run the city's company.
Authorized the city to pursue a state Department of Insurance permit to solicit other public entities to join in forming the company.
In a report to the council, Landau said that a preliminary actuarial analysis indicated that each public entity belonging to the program would have to have $10 million in reserves to cover possible claims.
Landau said that public entities could raise the $10 million without dipping into general funds by issuing taxable bonds. The specifics of the financing plans still need to be worked out in the coming year, Landau said, but basically the idea is that the cities' annual premiums would be used to pay off the bonds.
If little or none of the $10-million reserve is needed to pay off claims, Landau said, it is conceivable that after about seven years the bonds could be repaid with interest earnings and no annual premium would be needed, he said.
"We feel we could immediately cut our insurance premiums in half," Landau said. "As our assets grow, it's possible that we could be paying nothing after seven years."
Needs Four Other Cities
The city now pays $150,000 a year for $10 million worth of liability insurance with a $1-million deductible as part of a group of cities that are self-insured. Landau said he would recommend that the public agencies who join in forming the company agree to a $1-million deductible.
In addition to Gardena, at least four cities or other government entities would have to join in the effort, according to the analysis by Security Pacific Merchant Banking Group. Gardena would control the nonprofit corporation.
The other entities could be cities, special districts or county departments. Landau said some cities have expressed an interest in joining Gardena, but no official contact will be made until the city is granted a permit by the state to solicit other cities.
As for recruiting other cities, Fukai said: "I don't think that will be very difficult."
It may be harder, however, to expand from liability insurance to homeowner and automobile policies, as the city has envisioned. The state Insurance Department has interpreted the state insurance code to forbid public entities from issuing such coverage.
City Atty. Michael Karger said he believes the ban is applicable only to out-of-state public entities.
Doctors' Management Co., which is expected to run the city's insurance company, has told the city it is not interested in issuing policies other than for liability coverage.