HomeMy WebLinkAbout15 - Excess General Liability Insurance RenewalCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item 15
February 24, 2004
To: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
From: Human Resources, Lauren F. Farley, Risk Manager, 949 - 644 -3300
Ifarley(o)city. newport- beach. ca. us
Subj: Excess General Liability Insurance Renewal
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Issue
Does the City Council authorize the expenditure for the excess general liability
insurance renewal?
Recommendation
• The City Council approves the renewal of the excess general liability insurance
coverage for a twelve month policy with a self- insured retention (SIR) of
$500,000 and a $1 million SIR for Employment Practices Liability Insurance —
EPLI as outlined below.
SIR
$500,000
$1 million for EPLI
Background
Coverage Limits
$ 26 million
Annual Premium
$ 797,895
The city purchases excess general liability insurance through its insurance
broker, Brown & Brown. The broker of record establishes relationships with
insurance markets to find the best coverage for the least amount of premium.
Mark Zahoryin is our account representative with Brown & Brown and has been
associated with our excess general liability insurance program for the last twelve
years.
In regards to the city's history for excess general liability coverage, the city chose
to be uninsured for this coverage for a period of eight years (FY 85/86 through
FY 93/94) due to the insurance crisis of the 1980's when the insurance industry
• virtually stopped insuring local municipalities.
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The volatility in the insurance marketplace over the last couple of years is due to
a tightening of underwriter standards, increased exclusions of specific types of
coverage, paid losses exceeding earned premium, investment losses and again,
the catastrophic loss at the World Trade Center on September 11, 2001. The FY
02/03 excess liability renewal was the most volatile for all local governments
since the 1980's crisis and the impact on the city's coverage and premium history
is shown in the chart listed below. The following chart reflects the coverage limits
and premium history of the city's general liability program since 7/1/94:
General Liability Excess Insurance Limits and Premium History
Policy Period SIR/Coverage Limits Annual Premium
FY 94/95
FY 95/96
FY 96/97
FY 97/98
FY 98/99
FY 99/00
FY 00/01
FY 01/02
FY 02/03 (6 mos.only)
$1 million /$10
million
$343,606
$1 million /$10
million
$358,355
$1 million /$20
million
$337,915
$750,000/$25
million
$299,800
$500,000/$25
million
$255,000
$500,000/$25
million
$260,000
$500,000/$25
million
$268,000
$500,000/$25
million
$331,000
$500,000/$21
million
$475,997
With staff recommendation, City Council decided in January 2003 to change the
excess general liability program at the mid -year point due to increased
underwriting capacity and a premium savings over fourteen (14) months of
$216,453. The city also took the opportunity to maximize its position in the
market by strategically selecting a March 15i renewal date as reflected below:
Policy Period
SIR/Coverage Limits
1/1/03 to 3/1/04 (14 mos.) $500,000/$21 million
Annual Premium
$829,940
(Premium
Annualized for 12
mos. is $711,377)
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10
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Renewal Quotation
The excess general liability market began to stabilize last year and premium
increases were in the 5 to 15 % range. When our broker went to the market in
December of 2003, it was definitely stronger and we received three primary
quotes and one quote from CSAC JPIA, an excess insurance authority.
The quote from CSAC JPIA has merit, but also contains joint powers authority
provisions that are not completely compatible with the city's operation at this
time.
After full review of all the viable quotes submitted, our broker felt that Option 1 -
$21 million in coverage limits or Option 2 - $26 million in coverage limits
listed below were the best offerings for the city's program at a premium increase
in the range of 2.5% to 12 %.
OPTION 1 - $21 Million Coverage Limits
Primary Laver $11 million excess $500,000 SIR
CV Starr ($ 1 million SIR for EPLI)
Secondary Layer $10 million excess of $11 million
Munich Re
Total Premium
OPTION 2 - $26 Million Coverage Limits
Primary Laver $11 million excess $500,000 SIR
CV Starr ($ 1 million SIR for EPLI)
Secondary Layer $10 million excess of $11 million
Munich Re
Third Laver $ 5 million excess of $21 million
Claredon
Total Premium
Premium
$430,500
$299,250
$729,750
Premium
$430,500
$299,250
$ 68,145
$797,895
Both Option 1 & 2 allow us to maintain our program at its existing self- insured
retention (SIR) of $500,000 for all lines of coverage except for a $1 million
dollar SIR for Employment Practices Liability Insurance — EPLI.
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These quotes are inclusive of a broad coverage form affording the city the
insurance protection we need to perform our daily operations and provide the
services to our community. The insurance companies chosen meet or exceed
the city's minimum standards for financial strength and solvency with an AM Best
rating or A —, VII or greater.
Funding Availability:
Funds which cover the recommended expenditure are in the Internal Services
Budget— Insurance Reserve Fund, # 6020 -8720 and the FY 03/04 budgeted
figure is $1,120,419. This amount was purposely over estimated given the
severe'increase incurred in the previous budget cycle.
Prepared by j' J Su mi ed_by: ,
Lauren F. Fafaey, Risk Manager/ Dina Axley, HR Di
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