Guemes Island Ferry Insurance Analysis
GUEMES ISLAND FERRY STAKEHOLDER INSURANCE ANALYSIS
In March of 2023, the 2022 Guemes Island Expenses Report revealed an unexpected additional insurance expense of $448,878 - 374% over the budgeted amount of $120,799 for a grand total ferry insurance expense of $572,868. The purpose of this analysis is to bring attention to the many concerns about this expense including:
- In February of 2023, the Skagit County Board of Commissioners decided for the first time ever to charge the Guemes Island ferry for a percentage of the county’s overall insurance liability above and beyond the Marine Insurance Policy.
- Skagit County then used four minor car accident claims that totaled $5,366.93 to create an expense of $448,878 as the ferry’s share of the county’s liability insurance.
- These four claims were not paid for by an insurer or insurance company.
- The ferry and ferry system are excluded from the Washington County Risk Pool which insures Skagit County and pays premiums for a separate Marine Policy.
- The $448,878 additional expense was used to calculate the 2023 Guemes Island Ferry Fare Revenue Target, create the 2023 ferry fares, and was provided to Washington State for disbursement of the Ferry Deficit Fund.
- Resolution R20230020 does not provide the Ferry Division the ability to budget for future Operational and Maintenance (O&M) Expenses used to calculate ferry fares.
- The Guemes Island Ferry is paying a disproportionate amount of the overall premium of the Marine Insurance Policy that is shared with the Sheriff Department’s four vessels.
BACKGROUND OF CAUSE
The budgeted expense for the Guemes Island Ferry Insurance was $120,799 for 2022. The actual 2022 expense charged to the ferry was $572,868 - 374% over budget. The explanation for the significant increase provided by Skagit County is traced back to a February 2023 Resolution R20230020 which changed the way that Skagit County allocated insurance expenses to departments/divisions based on claims looking back to 2022.
In 2022, four separate minor car accidents occurred on the Guemes Island Ferry that resulted in a total of $5,366.93 paid out to resolve these claims. (See Appendix A). This $5,366.93 created multiple charges to the county insurance fund across many categories, including but not limited to a Liability Fund, General Liability Fund, Training and Safety Fund and Training Program Fund - expenses totaling $448,878. This was in addition to the Marine Insurance Policy charged to ferry for a grand total of $572,868. (See Appendix B).
WASHINGTON COUNTY RISK POOL EXCLUDES FERRIES AND FERRY SYSTEMS
What Policy Paid the Claims?
Through a public records request I questioned what insurance companies paid the four claims. I was sent an email with information regarding two policies: The Washington County Risk Pool (WCRP) (See Appendix C) and the Gallagher Marine Insurance Policy. (See Appendix D). However, the WCRP did not pay for these claims because the WCRP DOES NOT insure ferries, ferry systems, or vessels over 49 feet. (See Appendix E). These claims were not even submitted to the WCRP as referenced in Appendix A. The Marine Insurance Policy through Gallagher Insurance also did not pay these claims because the dollar amount was below the deductible. The explanation I have been given as to who paid the claims was “the county.”
Minor Expenses (Not Paid Through Insurance) Became General Liability Expenses
Resolution R20230020 (see Appendix F) mandates “General Liability Expenses are allocated based on actual claims history utilizing an average of the dollar amount of claims paid by fund and the number of claims paid by fund.” The fund did not pay the four claims, yet somehow $358,381 of the $1,408,375 liability was expensed to the ferry which is excluded from the policy. The ferry pays annually for a Marine Insurance Policy which is a separate policy from the county’s General Liability Expenses.
All of the remainder of the miscellaneous insurance charges that were charged to the ferry also deserve further investigation including but not limited to:
• “Loss Payments: Generated to the fund that paid the claim” total was $59,057.
• “Training Program: Allocate based on FTEs” resulted in the additional expense of $30,665. The ferry has less than 20 FTEs yet was expensed 24% of the fund.
EFFECT OF RESOLUTION
The $448,878 unexpected expense charged to the ferry in 2022 went directly in the ferry’s total O&M expenses used in calculating future Ferry Fares and was provided to Washington State to determine the distribution of the Ferry Deficit Fund.
Ferry Fare Target
If the $448,878 expense is removed out of the 2022 ferry O&M expenses, using the county’s new ferry fare model, it would reduce the 2023 Ferry Fare Target from $1,888,207 to $1,829,837.
Fares Based on Budget Predictions
The residents and visitors of Guemes Island are facing fare increases annually for the next five years to achieve a revenue target of 65% of the O&M cost calculated by average of the past two year’s expenses and 3 years of predicted expenses. The 2023 Preliminary Budgeted Ferry Insurance Expense is $124,423. With the current resolution in place, this expense could potentially exceed $1.5 million - the entire liability fund plus the Marine Insurance policy. This makes it impossible for any department/division to budget for insurance expenses.
County Inequity
The difference between how this effected the ferry vs other departments is that Skagit County is effectively charging the residents and visitors of Guemes Island to pay through their fares a disproportionate share of the county’s overall insurance premiums (which the ferry is excluded from). 65% of the $448,878 will be paid for through the fares. The ferry division is the only department/division in the county who requires reimbursement for insurance expenses and does so through the ferry fares.
Actual 2022 Ferry Budget
The $448,878 charged was 16% of the ferry’s total $2,904,594 O&M expense in 2022. Removing this expense would put the ferry under budget by $395,704 - not over budget by $53,173 as was stated on the 2023 Ferry Fare Revenue Target Report.
Washington State Ferry Deficit Report
This artificially inflated actual expense was used in the Ferry Operations Report given to Washington State to determine the distributions of the Ferry Deficit Fund. The agreement between Skagit County and Washington State to participate in this program includes how the state defines Operating and Maintenance expenditures as:
“Routine costs of operating and maintaining the ferry, including salaries, benefits, fuel, supplies, utilities, repairs, inspections, advertising, taxes, small tools, land leases, rentals, postage, printing, etc.”.
The routine cost of an actual insurance premium would most likely be included. So would the $5,366.93 in claims. It is not a “routine” operation expenditure to pay an exorbitant percentage of the overall premium for the entire county’s insurance. (See Appendix G) The Ferry Deficit Fund distributes funds to Skagit, Pierce and Whatcom Counties to help offset each county’s shortfall between O&M expenses and farebox revenue. The county with the biggest deficit receives the most funds. As a result of artificially inflating the actual insurance cost of the ferry, Skagit County potentially adversely affected what Whatcom and Pierce counties should have received.
County Road Fund
According to the 2023 Ferry Fare Revenue Target Report, the Road Fund Subsidy paid $1,118,211 for the ferry. Because of this Resolution, the County Road Fund had $448,878 less to spend on roads for the county.
THE MARINE INSURANCE POLICY
In addition to my concerns regarding the additional unexpected 2022 expense and the consequences of it, I have further concerns regarding our annual insurance premiums. Not only have the premiums increased 36% since 2018, (excluding the additional $448,878 from 2022) ($90,912 - $123,990) they are significantly more expensive when looking at some comparable ferries - many which insure multiple ferries:
2023 Budgets
Whatcom County Ferry - $85,134
Pierce County - $38,000 (total for 2 ferries)
Casco Bay Island Transit (KPFF used this ferry line in Guemes Island Ferry System 2023 Rate Study) - $79,200 (total for 5 ferries)
One explanation for the Guemes Island Ferry’s higher premiums could result from the fact that the Gallagher Marine Policy not only insures the ferry, it also insures four boats from the Sheriff Department.
The Four Sheriff Boats
The overall Gallagher Marine Policy premium for 2022 was $130,853 - $123,990 charged to the ferry and $6,863 to Current Expense and attributed to four boats belonging to the Sheriff Department.
The county calculated the actual expense charged to the Sheriff Department as a percentage of overall insured value of the ferry ($4,265,000) and the Sheriff Department’s Safe Boat ($543,000) to assign a portion of the overall premium. Based on this, only 11% of $62,358 was charged to Sheriff Department - not 11% of entire $130,853.00 - for a grand total of $6,863. (See Attachment H)
The logic behind this appears to be not charging the Sheriff Department with two sections of the overall policy: Excess Protection and Indemnity - $10M XS $10M and Excess Protection and Indemnity - $9M XS $1M. On the Gallagher Invoice, these two premiums referenced as “Ferry Only” totaled $68,465 of the total premium. However, on the Schedule of Vessels included in the Policy, all four of the Sheriff boats are included in this additional coverage. (See Attachment I) (If there is an exception to this I could not locate within the policy).
The Gallagher policy itself breaks down some specific charges to individual vessels which are explained throughout the policy estimate. (See Attachment H)
P & I
Ferry - $6,623 (this includes increase in Hull Value)
Safe Boat $1,509
22’ Runabout - $1,509
18’ Aluminum - $1,509
18’ Aluminum - $1,509
Hull Premium
Ferry - $23,625
Safe boat - $4,903
22’ Runabout - $338
Safe Harbor Pollution Charges:
Ferry - $920
Safe Boat - $350
22’ Runabout - $350
18’ Aluminum - $350
18’ Aluminum Upriver - $350
These specific charges alone result in $12,677 that should have been expensed to the Sheriff Department. This does not include a percentage of the overall premiums and the broker fees which should also be allocated to the Sheriff Department.
• The Guemes Island Ferry is paying a much higher percentage of the premium than even how the policy itself distributes expenses.
• Guemes Island ferry should be afforded with the actual estimate of the Marine Policy without the Sheriff Department boats.
• The Sheriff Department boats all meet the qualifications of being less than 49’ to be covered under the WCRP.
• The Sheriff Department receives a percentage of expenses reimbursed, including insurance expenses, through the Boater Safety Program.
CONCLUSION
The creative accounting methodology of Resolution R20230020 needs to be amended and/or replaced to either exclude the Guemes Island Ferry altogether and/ or put any additional claims not covered by the WCRP in a separate category by actual costs, not a percentage of overall county insurance premiums. The current resolution is unfair for the residents and visitors of Guemes Island who pay for a portion of this expense through fares. It is also unfair to the citizens of Whatcom County and Pierce County who rely on Skagit County using fair accounting principles when determining what is a routine O&M expense on the Washington State Ferry Deficit Report.
In addition to amending or replacing Resolution R20230020, the $448,878 creatively expensed to the ferry in 2022 should be corrected to reflect the actual insurance expenses incurred by the ferry, including adding the actual cost of the claims the county incurred. This includes correctly allocating the premiums from the Gallagher Marine Insurance Policy between the Ferry and the Sheriff Department.
*WCRP/Marine Policy Coverage
After conversations with the WCRP as well as Skagit County, there could be circumstances that arise where the WCRP could potentially pay a claim involving the ferry system, for example an accident in the ferry line. In this scenario, if the WCRP agreed to cover if determined by them to not be part of the ferry system, then my understanding would be that this also would not be charged as an expense to the ferry, but to the County Roads instead. Since the policy specifically states the ferry system and vessels over 49’ are excluded, it should not be considered the insurer of the Guemes Island Ferry. That leads to an additional question not addressed in this analysis: what insurance policy covers incidents in the ferry system not on the water?
- Cindy Kamp
State Law On Uses Of A Road Fund