A self-insurance fund begun by the city of Annapolis four years ago has paid for itself and then some.
In fiscal year 1987, the city's liability and insurance premiums reached $1.3 million. Fed up with soaring costs, the city took the money and created its own insurance program.
Four years later, the fund is earning about $280,000 a year, and paying out less than $250,000 in claims and expenses.
"We were paying more in premiums than we were in claims," Finance Director William Tyler said. "A lot of municipalities did the same thing around that time. We were driven to it by the tremendous escalation in premiums. I don't even know what it would cost us now to get that kind of coverage."
In a time of tight finances in the city, the self-insurance fund has been a bright spot. Actuarial studies have pronounced it a success, and city officials expect that one coming soon will reach the same conclusion.
"We've been able to save a tremendous amount of money through that program," said Alderman Carl O. Snowden, D-Ward 5, a member of the finance committee at the time the fund was started under former Mayor Dennis Callahan.
"If not for the wisdom of the previous administration," Snowden said, "our current financial situation would be exacerbated by the premiums other municipalities are being forced to pay."
Alderman John R. Hammond, R-Ward 1, the finance committee's chairman, was more cautious. "We're doing all right," Hammond said, "but a self-insurance fund is not something you can make an overnight judgment about. We can only make judgments based on experience, and I hope the experience we've had so far continues."
Tyler said the fund acts as the city's own insurance company. It maintains a fund and investigates claims made against the city.
The city put $1.3 million in the fund in fiscal year 1987 to get it started. It added another $700,000 in fiscal year 1988 and an additional $500,000 in fiscal year 1989. The city didn't have to add any money to the fund in fiscal year 1990, which ended June 30.
The balance in the fund is now $3 million. Tyler said the city earns about 9 percent interest on the money, or about $280,000 a year. So far, that's been more than enough to cover claims against the city, which have amounted to less than $250,000 a year.
The city paid out about $250,000 in claims and expenses last year. About $200,000 of that money went to a person involved in an accident with a city bus last year.
Annapolis maintains one conventional insurance policy that would cover any settlement more than $1 million. Called excess coverage, the policy costs $80,000 a year.
The city not only is cutting down on premiums, it's also working to improve safety. Howard Hoffman, a county risk manager who administers the program full time for the city, inspects city departments for safety violations such as improperly stored chemicals and orders the violations corrected.
"Between the excess coverage and our safety program, we've really cut our liabilities," Tyler said.