AUTHORIZATION TO RENEW FY 2016/17 PROPERTY, LIABILITY AND WORKERS’ COMPENSATION INSURANCE
Staff Contact: Jim Brown, Director, Human Resources and Risk Management
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Purpose and Recommended Action
Recommendation
This is a request for City Council to authorize staff to purchase property, liability and workers’ compensation insurance and/or self-insurance for FY 2016-17 in an amount not to exceed $1,415,607. .body
Background
City of Glendale Ordinance, Chapter 2, Administration, Article 5. Financial Affairs, Division 5. Risk Management Trust Fund, Section 2-207 Insurance provides that “The city risk manager, acting for the city manager, is authorized to enter into, on behalf of the city, any appropriate commercial insurance, alternative risk financing and surety bonding contracts to provide such risk insurance as determined to be in the best interests of the city”. Our Risk Manager has been working with Alliant Insurance, our broker, who has been placing insurance for cities for over 25 years. Their insurance placements include all lines of coverage placed through a proprietary group purchase program for public entities across the United States. Placement is underwritten and priced on a group basis without sharing the risks of the entire group.
Analysis
Alliant obtained quotations for property including auto physical damage, cyber/privacy coverage, pollution coverage, crime, excess liability, airport liability, fiduciary liability and a special liability policy for Glendale Regional Public Safety Training Center (GRPSTC). The quotes are based upon the same terms and conditions but with some deductible changes and some enhanced coverage. The not-to-exceed cost to purchase the insurance for FY 2016-17 is $1,415,607. The expiring premium was $1,277,995. Attached is the Renewal Projections spreadsheet that lists each type of coverage, the expiring costs and the estimated renewal costs. Also included is the renewal marketing report detailing the marketing completed on this renewal.
Property Insurance
The policy provides coverage for all buildings and contents including boiler and machinery, city automobiles, cyber/privacy and pollution with varying deductibles. Our “all risk” deductible on property is $100,000, except for flood which is $500,000, automobile physical damage is $25,000 and unscheduled property (tunnels, bridges, dam’s roads, streets, sidewalks, traffic signals, etc.) is $500,000. A summary of the limits and coverage’s is attached.
The property coverage also provides limited coverage for pollution liability for all above and underground storage tanks, seepage and contamination, cost of clean-up for pollution and mold for NEW conditions found. Our current coverage for underground storage tanks is self-insured up to $750,000 and is excess any other insurance. This coverage does not meet the financial assurance requirements of ADEQ since we self-insure the first $750,000. Our current policy does not provide coverage for existing asbestos and lead based paint.
We have had some significant property losses in the past five years. The final quote for property insurance for FY 2016/17 is $373,105 compared to $363,408 for the prior FY. The city’s total insured property values are $767,428,311 which is a 2.66%% increase from the prior year due to a slight increase in property values. The property insurance program provides $1,000,000,000 in property damage limits. The rate per each $100 in property values slightly increased to 0.0486175 (from 0.0474157) or 2.53%. The property market has been soft this year with underwriters willing to provide decreases based on the lack of catastrophe losses. For insureds, like us, who have had a number of large property losses in the past couple of years, we are seeing a slight increase in our rate. These losses are:
• 10/19/09 fire residential housing $248,748
• 10/5/10 hail loss $1,054,903
• 7/13/14 vehicle fire $28,196
• 7/13/14 fire in Old Station 151 (Resource Center) $511,000
• 9/8/14 flood/storm $1,350,000
Attached is the property premium year over year history for comparison. The rate had started to decrease but we were hit with three losses in one year. The increase in rate last year was just over 11% while this year the increase is slightly over 2%. The rate is still very competitive.
The carrier did provide some coverage enhancements. The automatic acquisition time limit to report new property purchased in excess of $100,000,000 went up from 90 days to 120 days, the increased cost of construction sub-limit increased from $25,000,000 to $50,000,000, excess terrorism limit increased to $600,000,000 from $400,000,000, removed the exclusion for contamination when caused or resulting from a loss, added coverage for damage to artificial turf and some other minor changes.
The property coverage includes coverage for cyber liability as part of the property policy with no additional cost to the insured. There is coverage for $2 million in limits that include all services related to a data breach with a sublimit up to $1 million for privacy notification costs with a $100,000 deductible. The cyber program has an aggregate of $25,000,000 for all claims made against the policy. One large loss or multiple losses in one year by the pooling group could use up the total aggregate limit of insurance.
We asked Alliant to provide an option to purchase enhanced cyber liability that would provide broader coverage including an option that offers dedicated coverage for notification costs not subject to the $25,000,000 program aggregate and a lower deductible. In the last few years, there has been a noted increase in the number of cyber-attacks. The increased coverages and services available include:
• Separating breach notification costs from the dollar limit and specifying the number of covered notifications - notifications do not erode the aggregate limit of the primary policy.
• Dedicated Breach Response Team
• Lower deductibles for privacy notification services. We have determined we have approximately 250,000 individuals that would need to be notified in the event of a breach.
• Separate, standalone limits for legal, forensics, crisis management or public relations firms
• No monetary cap for credit monitoring and call center services
• Extensive risk management resources available for your organizations’ stakeholders (legal, IT, risk, compliance, etc.)
• The deductible for notification/breach resolution and mitigation services is 100 notified individuals (Individual cost approximately $295 or $29,500)
The cost of the enhanced coverage is based upon the City’s total operating budget proposed for FY 2016/17 estimate at $388.9M. The estimated cost of the enhanced coverage is $24,000. The majority of the cost of claims for cyber-attacks involves the cost to notify the individuals affected and monitoring their credit. The deductible is reduced from $100,000 per occurrence to kick in after 100 individuals have been notified. The average cost of notification is $295. The deductible would be reduced to approximately $29,500. We would recommend purchasing the enhanced coverage due to the increased coverage enhancements and reduction in coverage. A summary of the enhanced cyber coverage is attached.
The city purchases crime insurance which provides protection for the city’s money and securities up to $10,000,000 in limits. The quote for FY 2016-17 remained flat and is the same as the expiring premium at $28,523. The city purchases a fiduciary liability policy which covers the Deferred Compensation Plan/Deferred Compensation Committee with $5,000,000 limits with a $5,000 deductible. The quote for fiduciary liability is also flat and remained the same as expiring at $12,221. The city purchases a public employees blanket bond (required by ordinance) which covers the Risk Management and Workers’ Compensation Trust Fund board with limits to $10,000. The policy cost $180, same as the expiring policy.
We are recommending renewing with Alliant’s Property Insurance Program as detailed above, including the extended excess cyber liability not to exceed $437,849.
Excess Liability
The city’s excess liability insurance provides coverage on an occurrence basis including bodily injury, property damage liability, errors and omissions liability, employment practices liability, employee benefit liability, wrongful act or employee benefits wrongful act and products and completed operations hazard. The city purchases a total of $50,000,000 in limits. The city has a $1,000,000 self-insured retention (large deductible). The FY 2016-17 quote is $746,471 compared to $656,917 last FY. The expiring policy provided coverage for terrorism up to a $50M limit. All coverage’s expected to remain the same. Alliant is marketing this program.
The coverage is currently insured in three layers, $10M by Alliant’s Municipal Liability program (ANML) (underwritten by Technology Insurance Co.), $15M (excess the first $10M) by Navigators and $25M (excess the first $10M and second $15M) by Arch Insurance Co. The quotes provided are not to exceed numbers. We expect final, firm quotes in mid-June. All increases are actuarial driven. The excess underwriters hired a new actuarial firm this year and they are being very conservative. Alliant went to the markets to obtain alternative quotes. Out of the nine carriers marketed, eight declined to quote and one, Lloyds of London was not willing to provide coverage as broad as we currently have under ANML. The not to exceed quote to renew the excess liability coverage is $746,471.
The city purchases a separate airport owners and operators general liability policy with $20,000,000 in limits on an occurrence basis including bodily injury and property damage liability, products and completed operations, personal injury and advertising injury, hangar keepers, non-owned aircraft liability, and fire damage liability. This policy is needed to provide coverage for the airport operations hazards which are not covered in the excess liability policy. There is no self-insured retention and no deductible. The carrier held the premium at $7,800, which is the same as last year.
The city also purchases a small liability insurance policy to protect the Glendale Regional Public Safety Training Center (GRPSTC) with $2,000,000 in limits and a $5,000 deductible. This policy is required to meet our financing obligations. We are currently marketing this coverage and expect a small increase. The not to exceed quote is $5,210 and the expiring is $4,962. This coverage does not renew until 9/29/2016.
We are recommending renewal of the liability program, as detailed above not to exceed $759,481.
The property and liability insurance premiums are paid from the Risk Management Trust Fund. For all the coverage’s described above, the total not to exceed premium is $1,192,330 and the amount is included in the budget being proposed to City Council. Last FY total premium was $1,277,995, an estimated increase of $123,499 over last year.
Excess Workers’ Compensation
The city purchases statutory excess workers’ compensation with an $800,000 SIR and employer’s liability insurance with $2,000,000 limits. There are only a handful of carriers that will underwrite public entity workers’ compensation programs. The current carrier, Safety National has provided a rate of 0.188 per $100 of payroll and will guarantee that rate for two years, billed annually, with some caveats as follows:
• The SIR, limits and coverage will remain as expiring.
• No significant change in exposure (meaning a 15% change)
• No significant change in business development or non-core business
• No material adverse change in financial condition
• No new individual loss that will exceed 50% of the SIR ($400,000)
• No development of existing claims greater than 50% of the SIR ($400,000)
• If any of the above occurs, then they will re-rate the policy and it will be subject to a rate increase
Services included in the current rate are: Safety Essentials on-line training, Best Doctors Catcare, Ask Best Doctors program which provide in-depth case review by world renowned doctors and $5,000 worth of loss control safety inspections. We are still working with Safety National on finalizing the proposed premiums and to see what additional reductions or enhanced coverage can be provided.
Risk Management recommends placing the coverage with Safety National including the two year rate guarantee. The workers’ compensation insurance premiums are paid from the Workers’ Compensation Trust Fund. The total cost of renewing the excess workers’ compensation and employer’s liability insurance shall not exceed $218,277. This amount is included in the current FY 2016/17 budget being proposed to City Council.
On June 8, 2016, the Risk Management and Workers’ Compensation Trust Fund Boards met. The Board is recommending that City Council approve the property, liability and workers’ compensation coverage’s and limits not to exceed $1,415,607.
Previous Related Council Action
The City Council approved renewal of the property, liability and workers’ compensation insurance renewal for FY 2015/14 at the May 26, 2015.
Budget and Financial Impacts
The FY 2016/17 budgeted amount for all insurance/self-insurance as described above is included in the budget proposed to Council. Risk Management recommends purchasing property, liability and workers’ compensation insurance and/or self-insurance for FY 2016/17 not to exceed $1,415,607.
|
Cost |
Fund-Department-Account |
|
$1,192,330 |
Risk Management Trust Fund, HR - 2540-18010-518200 |
|
$218,277 |
Workers’ Compensation Trust Fund, HR - 2560-18110-518200 |
Capital Expense? No
Budgeted? Yes