By Dee Camp
The Chronicle

     OKANOGAN – The pool through which many local cities and fire districts buy their insurance does not have enough assets to cover potential liabilities and has been ordered by the state to clean up its finances.
     The situation could leave several cities on the hook for additional payments to help out the pool.
     A cease-and-desist order was issued by the state Office of Financial Management on Jan. 14 to the Cities Insurance Association of Washington, a consortium of 95 cities formed in 1988 to provide liability, auto, physical damage and property insurance to its members. In addition, 155 associate members also purchase insurance through the pool.
     Members include Brewster, Coulee Dam, Electric City, Elmer City, Grand Coulee, Mansfield, Nespelem, Okanogan, Omak, Oroville, Pateros, Republic, Riverside and Tonasket.
     Among the associate members are Bridgeport Bar Irrigation District, Ferry-Okanogan Fire District No. 14, Oroville EMS District, and Okanogan County Fire District Nos. 1, 2,3,4,9 and 16.
     Okanogan City Attorney Bud Gardner told the city council Feb. 2 that he is very concerned about the city’s financial exposure.
     Members have a different financial obligation in the pool than associate members, according to OFM documents.
     The council voted to have Gardner and the clerk’s office gather more information and to look into other insurance providers. A report is expected at the Feb. 16 council meeting.
     “This is a serious matter,” Councilman David Linn said.
     Linn, a former examiner with the Washington State Auditor’s Office, said he hadn’t looked at the order and other documents in depth, but is concerned about the city’s financial exposure based on a review just before the council meeting.
     “I don’t want to jump ship too soon,” Councilman Steven Gadd said.
     Omak City Administrator Ralph Malone said he is aware of the order, but Omak officials are not terribly alarmed.
     City Attorney Mick Howe, who also represents several other local cities, is monitoring the situation, Malone said.
     The order from the state “paints a different picture” than what Omak officials understand the situation to be, he said.
     OFM spokesman Glenn Kuper said his agency believes the pool’s financial condition “is pretty unsafe.”
     Pool and OFM officials met Jan. 29 in Seattle to discuss the order, the pool’s finances and plans for fixing the problem. Several member agencies also showed up to hear a report from James Marta and Co., a certified public accounting firm with which the OFM contracted to review the association’s finances.
     According to the cease and desist order, signed by state Risk Manager Lucy Isaki and Local Government Self-Insurance Program Administrator Shannon Suber, the association violated state law by operating in an unsafe financial condition.
     “The pool does not currently have sufficient assets to cover the program’s liabilities,” the order said.
     Reports provided by the association to the Washington State Auditor’s Office and OFM do not accurately portray the association’s financial condition.
     “Even if the member receivables are approved by the (the association’s) board and collected over the next three to five years, the pool does not currently have sufficient assets to fund CIAW’s liability of $4.8 million, determined by the pool’s actuary as of the 2009 year end,” the order said.
     Only the 95 members can be reassessed. Associate members are exempt.
     The association did not fully fund stop-loss insurance coverage, as required by state code, and also changed the type of policy it purchased without requesting approval from the state risk manager, the order said.
     The pool must stop such actions, increase reserves to a safe operating level that meets or exceeds its liabilities, obtain approval of the recent changes, reassess members and determine amounts paid to the insurer/broker for insurance not received and recover those amounts.
     The pool has 20 days to act or face further administrative action, including notification of the state auditor and attorney general.
     According to the Marta report, the pool’s unrestricted net assets were $404,879 as of Aug. 31, 2008.
     The industry standard for the ratio of claim liabilities to net assets should be no more than 3.5 to 1, yet the association had claim liabilities to net assets of more than 18 to 1 as of Aug. 31, 2009, the report said.
     The amount receivable by the pool isn’t enough to meet payment obligations, the report said. Claims also rose more than 200 percent in a two-year period.
     Marta also noted that Federal Way, which left the pool, still owes nearly $196,000.
     Kuper said the situation is ongoing, meaning it isn’t confined to the 2002-2008 period covered by OFM’s probes.
     “We’re not saying that they have claims that they can’t pay,” he said, but added, “they don’t have the money in the pool to cover their liabilities.”
     He said he’s not sure about the exposure of board members or the cities they represent.
     The pool is administered by Canfield and Associates, Ephrata.