Memo

Memorandum

City of Lawrence

Administrative Service Department

TO:	David Corliss – Interim City Manager
FROM:	Jennifer Harvey – Risk Manager
CC:	Frank S. Reeb – Administrative Services Director, City Clerk Debbie Van Saun – Assistant City Manager
Date:	June 22, 2006
RE:	July 1, 2005 Insurance Policy Renewals Building/Property Insurance Fire & Medical Auto/Professional Liability Insurance

Introduction

On July 1, 2006 at 12:01am, insurance policies for City Buildings/Property and Fire/Medical Auto and Professional liability coverage will expire. This memo is written to advise you of the recommended coverage options and seek your approval to bind coverage in advance of the expiration. I am pleased to recommend renewing building/property coverage with Affiliated FM and auto/professional liability/portable equipment coverage for the Fire/Medical Department with Emergency Services Insurance Program (ESIP) for the insurance period of 7/1/06 to 7/1/07.

Building/Property

You may recall that last year the brokerage firm of Arthur J. Gallagher approached us with a very attractive option that resulted in a change of insurance carriers as well as broker representation. While we had been satisfied with our broker relationship with Charlton Manley insurance and our insurer at the time, St. Paul-Travelers, a significant decrease in premium was offered by the Gallagher proposal while providing coverage enhancements not offered in the expiring policy.

Affiliated FM, a premiere insurer, offered coverage at the same deductible level of $25,000, with the addition of earthquake, flood, and boiler/machinery coverage (standard exclusions, variant deductibles, and sub-limits) in one policy. By binding coverage with Affiliated FM, we reduced premium dollars by $17,761 which represented a 15% savings from the St. Paul-Travelers premium of $136,163 versus Affiliated FM’s premium of $118,402. We saved an additional $4,088 by eliminating the separate coverage for boiler machinery through Cincinnati Insurance that was no longer needed as coverage was included in the Affiliated FM policy.

A year later, the property insurance market has hardened significantly in coastal areas due to hurricanes Katrina and Rita. The market for entities in the Midwest has remained relatively flat. Our loss history is no longer blemish free following the microburst of March 12, 2006. We have an open claim filed against our coverage with Affiliated FM which we would expect to impact our renewal quote. I have reviewed two coverage proposals, the renewal option from Arthur J. Gallagher and Affiliated FM and a proposal from Charlton Manley offering competitive coverage through Great American Insurance Company.

Gallagher Renewal Proposal

Affiliated FM initially presented a flat renewal rate expressing some concern regarding the yet to be finalized microburst claim of March 12, 2006. After providing the underwriter an updated estimate of the expected total claim, they revised their proposal to decrease our base premium by 4% from $118,652 last year to $114,000 for 2006-2007 coverage. This does include an adjustment in the overall schedule of insured property values by 4% for inflation and the addition of the new Fire/Medical Station which is valued at $4,865,227. Total insured values for City properties have increased by 9% from last year from $204,444,292 to $223,136,236.

Charlton Manley Competitor Proposal

After approaching approximately six insurers on our behalf, the Charlton Manley Insurance brokerage proposed coverage provided by Great American Insurance. This company has a slightly lower AM Best rating than Affiliated FM which is rated as superior. Great American is rated as excellent. The coverage offered with this proposal closely mirrors that of our existing coverage with a few differences. Boiler/machinery coverage is not included therefore a secondary proposal was provided to replace that coverage with a policy from the Federal Insurance Company. The quoted premium figures include the premium for the boiler/machinery coverage for comparison purposes. Sub-limits and specific additional deductibles for flood and quake are the same. Affiliated FM also has a sub-limit for hail while Great American does not.

Great American has proposed their coverage with a premium of $128,600 which is approximately 12% ($14,600) higher than Affiliated FM’s renewal proposal of $114,000. If Affiliated FM had returned a flat renewal, Great American’s coverage may have offered a competitive option.

Both Affiliated FM and Great American have identified approximately 17 buildings or locations that are excluded from flood coverage as they fall with the policy’s excluded flood zones A and B. However, Affiliated FM has offered coverage for properties identified in zone B for an additional premium of $10,000.

Fire & Medical Emergency Vehicles and Professional Liability Coverage

We are about to complete our first year of coverage for the Fire and Medical Department emergency vehicles, professional Liability, and portable equipment coverage with Emergency Services Insurance Program (ESIP) which is funded by ARCH Insurance Company. The renewal premium is $68,229 up from $65,988 last year. This represents an increase of approximately 4% which is attributed to market conditions and the replacement of two 1994 model Wheelcoaches with two 2006 Freightliners.

Staff Recommendation

With considerable review, staff recommends renewing coverage for Building/Property with Affiliated FM for the insurance period of 7/1/06 to 7/1/07 for a premium of $114,000 and further recommends purchasing the additional coverage for properties located within flood zone B for a premium of $10,000. The total policy premium will be $124,000. Staff also recommends renewing coverage for Fire/Medical Auto/Portable Equipment/General, Management, and Professional Liability coverage with ESIP for the insurance period of 7/1/06 to 7/1/07 at a total premium of $68,229. Should you have further questions, please do not hesitate to contact Frank or me.