New London - The city will see a 10 percent increase in the cost of its liability and auto insurance policy and an increase in its deductible for that policy to $500,000, the city's finance director said Friday.

"This effectively leaves the city uninsured except for catastrophic losses," Finance Director Jeff Smith wrote in a memo to the mayor and members of the City Council dated March 5.

The changes come as a result of poor experience, or a high number of claims with potential losses, over the last three years, Smith said. He likened the rise to an increase in car insurance after a series of crashes.

"Insurance is experience-rated. If you have bad experience, your insurance policies are going to go up," Smith said Friday. "Insurance companies are not in business to lose money."

The premium for the city's liability and auto insurance policy, which is provided by the Connecticut Interlocal Risk Management Agency (CIRMA), will go up about 10 percent, and the city's deductible for that policy will increase from $0 or $50,000 - depending on the line of insurance - to half a million dollars.

The city had budgeted $688,554 for premiums in the current city budget.

According to the CIRMA website, a liability and auto policy "protects your entity against financial loss resulting from claims of injury or damage caused by your employees and volunteers."

According to Smith, three incidents in particular - the August 2011 police-involved shooting that left the driver of a stolen ice truck paralyzed, the July 2013 drowning of a 6-year-old boy at a municipal beach on Pequot Avenue and the Jan. 30 death of a man who apparently fell into the trash compactor at the city's transfer station - likely contributed to the premium and deductible increase.

"I don't think there is any thing the city necessarily did wrong here. When you look at these, these are tragedies for the most part," Smith said, noting that the Jan. 30 incident remains under investigation. "So you end up with three tragedies, plus the fact that you're insured for these, and the insurance company looks at you and says, 'you're a lousy risk.'"

Though Smith mentioned three incidents in particular, they are not the only claims that could have had an impact on insurance costs for the city.

Aside from the financial implications of the higher premium, the $500,000 deductible puts the city at "a pretty significant risk," Smith said.

In the event of another incident that the city could be found liable for, the city would have to pay the first $500,000 of the claim, which Smith said the city would likely have to go to bond for due to its precarious financial condition.

"Unfortunately, because we have been so strapped for money that we have not been able to build up reserves, it is sort of a double whammy," he said. "Now our insurance has gotten even worse and we have no reserves."

Smith said he will be looking into how else the city can deal with this problem so "we can put ourselves in a better position."

"There isn't an easy answer to this, but I'll do what I can to see how I can reduce this potential risk to the city," he said.

In 2011, CIRMA gave the city a risk management achievement award for "establishing risk management as an organizational priority," The Day reported. The risk manager position had been established in the finance department in 2010 but is currently vacant.

Last month, Mayor Daryl Justin Finizio said the city is close to hiring someone to fill the position of personnel coordinator and risk management, which would combine two positions that have been vacant for about a year.

The city's premiums could go back down, if it can manage its risk "and not have these types of things happen," Smith said.

"The longer you go without these terrible things happening, the cheaper your insurance is going to be," he said.

c.young@theday.com