Memorandum
City of Lawrence
Administrative Service
Department
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TO:
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David
Corliss – City Manager
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FROM:
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Jennifer
Harvey –
Risk Manager
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CC:
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Frank
S. Reeb – Administrative Services Director, City Clerk
Debbie
Van Saun –
Assistant City Manager
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Date:
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June 20,
2007
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RE:
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July 1, 2007 Insurance Policy
Renewals
Building/Property Insurance
Fire
& Medical Auto/Professional Liability Insurance
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Introduction
On July 1, 2007 at 12:01am, insurance policies for the City’s
Buildings/Property and Fire/Medical Auto and Professional liability coverages
will expire. This memo contains staff’s recommended actions and requests 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 7/1/07 to
7/1/08.
Background
Building/Property
Early in the second quarter of 2007, we began preparing for
the expiration of our building/property coverage with the brokerage firm of
Arthur J. Gallagher. Gallagher sought a renewal quote from our existing
insurer, Affiliated FM, a superior rated premiere insurer, and in addition
sought quotes with six other quality insurers. However, all six additional declined
to quote coverage for the reasons detailed below:
Hartford Insurance Co. Declined
due to exposures (airport, water treatment)
Chubb Insurance Co. Declined
due to location
Fireman’s Fund Ins. Co. Declined
due to the size of our entity (too large)
Allianz Insurance Co. Declined
no response
St. Paul Travelers Ins. Co. Declined
pricing was not competitive
Great American Insurance Declined
pricing was not competitive
You may recall that we previously insured with St. Paul
Travelers. Three years ago Gallagher secured significant premium savings and
increased coverage enhancements from Affiliated FM. St. Paul Travelers remains
unable to compete with the pricing and coverage enhancements offered.
The public entity property insurance market in the Midwest has remained relatively flat. Our loss history is no longer blemish free following
the microburst claim of March 12, 2006. However, in spite of some exposure
increases, Affiliated FM has expressed their desire to retain our business by
presenting an attractive renewal rate. Therefore, our rate of .0538 per $100
of insured values will decrease to .05170 for the base of our pricing. Total
insured values for City properties have increased by 5.1% from last year’s
renewal ($223,136,236 to $234,501,775). The schedule of the City’s insured
properties was reviewed and modified including an adjustment in overall
property values by 4% for inflation. This also includes the addition of new
Fire Station #4, 2121 Wakarusa Drive, in October 2006, which is currently
valued at $2,440,089. Our base premium will increase by only $1,227 from
$110,000 to $111,227.
Affiliated FM will continue to offer an endorsement to the
policy to provide flood coverage for those properties located within Zone B for
an additional $10,000. The initial quote provided by Affiliated FM did include
an increase in their annual engineering fee from $4,000 to $6,500. Gallagher
on our behalf was able to successfully remove the increase. The total premium
for 2007-2008 coverage will be $125,227 ($124,000 2006-2007 renewal quote).
Fire & Medical Emergency Vehicles, Professional
Liability, and Portable Equipment Coverage
Coverage for the Fire and Medical Department emergency
vehicles, professional Liability, and portable equipment coverage has been
provided for the past two years by Emergency Services Insurance Program (ESIP)
which is funded by ARCH Insurance Company. This organization
specializes in the coverage of Fire and Medical Departments. Several years ago
we sought out specialized insurers as opposed to commercial auto insurers and
achieved significant premium savings as well as coverage enhancements. Our
loss history with this coverage is also not blemish free following the accident
involving Quint #1 and a civilian vehicle that occurred on 10/26/2006.
ESIP initially quoted a renewal in the amount of $77,149 (including
brokerage fee) pointing to adverse industry experience overall rather than our
personal loss experience. Before even approaching us with this substantial
increase, Gallagher on our behalf, advised ESIP that they would require better
numbers. ESIP returned a reduced quote in the amount of $75,572. This
represents an increase of 10.76% from last year’s renewal premium of $68,229
(including brokerage fee). However, additional emergency vehicles have been
added since last year’s renewal. At the time of renewal in 2006 we were
insuring 20 emergency vehicles at a replacement cost estimate of $5,809,997. We
currently insure 24 emergency vehicles at a replacement cost estimate of
$7,200,605. This added prorated premium of $3,238.41 to our 2006 original
premium of $68,229 for an adjusted premium of $71,467. Annualized additional
premium would have been $73,521. The renewal quote for 2007-2008 coverage in
comparison to the annualized premium for the endorsements would therefore
represent an increase of only 2.79% or $2,051.
Property
and Fire/Medical Auto, Liability, and Portable Equipment Insurance Historical
Data
Pages four and five of this memo contain graphs and
spreadsheets detailing the history of our property insurance coverage and the
coverage for the Fire and Medical Department’s vehicles and professional
liability. It is important to note that the City’s schedule of property values
have increased by 116% over the last 10 years due to the addition of facilities
as well as inflation, thus increasing our premiums in addition to market
increases due to industry losses following the events of 9/11 and Hurricane Katrina.
Over the years we have worked aggressively with our brokers to moderate increases
and their impact upon our budget including increasing our property deductible
from $10,000 to $25,000.
Along the way we have also had the opportunity to enhance
and improve our portfolio of coverages. These are just a few of the coverage
enhancements we have secured over the last several years.
·
We were able
with Affiliated FM to secure true blanket coverage eliminating a margin clause
per location.
·
We were able to
secure some flood coverage for our properties in Zone B where coverage had been
previously excluded.
·
We were able to
fold into our property policy coverage for our boilers and machinery with no
additional premium allowing us to eliminate a separate policy and premium.
·
We were able to
significantly decrease the amount of premium for our Fire and Medical vehicles
by removing them from commercial auto markets and placing them with insurers
who specialize in emergency services coverage.
·
We were able to
secure portable equipment coverage for the equipment carried in our Fire and
Medical vehicles.
·
We were able to
secure professional liability coverage for our Firefighters. These are just a
few of the coverage enhancements we have secured over the last several years.
Recommended Action
With considerable review, staff recommends renewing
coverage for Building/Property with Affiliated FM for the insurance period of
7/1/07 to 7/1/08 for a premium of $125,227. Staff also recommends renewing
coverage for Fire/Medical Auto/Portable Equipment/General, Management, and Professional
Liability coverage with ESIP for the insurance period of 7/1/07 to 7/1/08 at a
total premium of $75,572. Should you have further questions, please do not hesitate
to contact Frank or me.
