City could save $100,000 a year by performing insurance claims administration in-house, report says
New Orleans could save $100,000 a year by reviewing vehicle insurance claims in-house, Inspector General Ed Quatrevaux said this week in a report evaluating the city's self-insurance program for its motor vehicles. He said the city also lacks a comprehensive policy for use of its vehicles.
The evaluation examined costs associated with the city's vehicle self-insurance program over several years, with special focus on the first year of Mayor Mitch Landrieu's administration. In several instances the city had its claims administration contractor perform work without a current contract in place, and in one case the city spent $90,960 on two contracts that paid for the same work, the report said.
"The city has 1,900 vehicles and $2.7 million in annual vehicle accident-related costs," Quatrevaux said in releasing the report. "If the city is going to self-insure, it needs to behave like an insurance company and reduce risks by removing its bad drivers from the roads."
The evaluation examined costs associated with the city's vehicle self-insurance program over several years, with special focus on 2010-11, the first year of Mayor Mitch Landrieu's administration. From 2007 to 2011, it found, the city spent an average of $1.5 million a year on its motor vehicle self-insurance program and an estimated $1.2 million in associated workers' compensation costs.
Responding to the report, Chief Administrative Officer Andy Kopplin disputed many of Quatrevaux's findings, even though Kopplin said the Landrieu administration inherited most of the problems when it took office in May 2010.
He said that when the Landrieu team came in, they found that the claims administration contract had expired in 2009 and "had not been competitively procured since 1988." He said the administration hired a new firm at a savings to the city, but that it took many months to straighten out the contractual situation.
The city self-insures its fleet, directly paying all damages and liabilities rather than transferring the risks to an insurer. The inspector general's investigation found that the city averaged $859,000 a year in liability costs, $570,000 in damages and $242,000 in administrative costs, and collected on average $195,000 from at-fault third parties, making the average net cost of the self-insurance program $1.5 million a year. Workers' compensation claims related to vehicle accidents cost the city another $1.2 million a year.
The city contracts with a company that reviews claims, investigates accidents and negotiates settlements that need to be approved by the Law Department. Quatrevaux said his staff's review of the claims administration contract found that:
- The city could have performed the claims administration work itself for $100,000 a year less than the current contract costs.
- The city overpaid $90,960 over 29 months by initiating two separate contracts that paid the same company to do the same work.
- The contractors performed work without a contract specifying the full terms of their duties and compensation, performed work under the terms of an expired contract, and began work before a new contract was signed by the mayor.
The evaluation also looked at the city's vehicle use policies, which the report called an important component of comprehensive risk management. Quatrevaux said it found that:
- The city did not adequately monitor employees' official driving records or on-the-job driving safety records, and did not set standards for denial of driving privileges.
- The city did not require safety training for all drivers of its vehicles.
- The city did not adequately enforce personal insurance requirements for employees with take-home vehicles.
In addition, evaluators found that the city did not maintain reserves for the motor vehicle self-insurance program, despite the likelihood of periodic spikes in claims.
The inspector general's office urged the city to move the claims administration work in-house or "negotiate a significant reduction in the contract cost," and make sure that all contracts include complete terms.
It also said the city should adopt a vehicle use policy, modeled on the state's policy, that would include clear standards for denial of driving privileges and require annual checks of drivers' records, the monitoring of employees' on-the-job driving records, and training in defensive driving.
In his response, Kopplin disputed the claim that the city could save money by handling the claims administration itself. He said Quatrevaux underestimated the costs of doing the work. He also denied that the city wasted $90,000 by contracting twice for the same services. He said the two contracts covered different types of appraisals.
As for the finding that the city does not adequately monitor its employees' driving records, Kopplin said 90 percent of the employees who drive city vehicles belong to the Police Department, Fire Department or Emergency Medical Services, and those departments "monitor employees' driving records, track on-the-job safety records and require safety training for drivers."
Kopplin said the city will establish new procedures for training and monitoring the records of other employees allowed to drive official vehicles, and will make sure that employees with take-home vehicles have personal insurance policies in force.