Memorandum

City of Lawrence

Administrative Service Department

TO:	David L. Corliss – City Manager
FROM:	Jennifer Harvey – Risk Manager
CC:	Frank S. Reeb – Administrative Services Director, City Clerk Cynthia Boecker – Assistant City Manager Diane Stoddard – Assistant City Manager
Date:	June 19, 2008
RE:	July 1, 2008 Insurance Policy Renewals Building/Property Insurance Fire and Medical Auto/Professional Liability Insurance

Introduction

On July 1, 2008 at 12:01am, insurance policies for the City’s Buildings/Property and Fire and Medical Auto and Professional liability coverage 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.   In addition, I recommend binding coverage for auto/professional liability/portable equipment coverage for the Fire and Medical Department with VFIS (A Division of the Glatfelter Insurance Group) for the insurance period of 7/1/08 to 7/1/09.

Background Building/Property

Early in the second quarter of 2008, we began discussions preparing for the expiration of our building/property coverage with the brokerage firm of Arthur J. Gallagher.  You may recall that last year the coverage was marketed, and the renewal quote submitted by the current insurer, Affiliated FM, was selected as the other insurers were less competitive.  Initial discussions in 2008 with the underwriters of Affiliated FM were positive and suggested we could expect a rate decrease due to softening of the public entity property insurance market. 

Over the last few months the market has remained softened but underwriting concerns began to emerge regarding stock market losses and increasing energy costs.  Significant negotiation took place in determining the appropriate adjustment in overall property values due to inflation.  Although Affiliated requested a 5% across the board adjustment, Gallagher negotiated that total insured values would be adjusted by 4%.  Total insured values for insured City Properties will increase from $234,501,775 to $244,483,616 (4.3%).  This includes $232,055 for the addition and/or adjustment in value of nine Parks and Recreation facilities discovered during pre-renewal audit.

The coverage deductible remains at $25,000.  Flood coverage for those properties located within Zone B is now included and no longer an additional premium cost.  The annual engineering fee will remain at $4,000 again due to negotiation by our broker.      

Affiliated FM has presented an attractive renewal rate decrease of 13% from .0517 per $100 of insured values to .0450.  Offset by our increase in total insured values, our base premium will decrease by $11,219 (from $121,237 to $110,018).  The total premium for 2008-2009 coverage will be $114,018 ($125,237 for 2007-2008).

Background Fire and Medical Emergency Vehicles, Professional Liability, and Portable Equipment Coverage

Coverage for the Fire and Medical Department’s emergency vehicles, professional Liability, and portable equipment has been provided for the past three 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 first relationship with a specialized insurer was established in 2003 with VFIS, a division of the Glatfelter Insurance Group.  They came to us with a well established reputation for not only specialized coverage for Fire and Medical organizations nationally, but also a portfolio of training products recognized and utilized throughout the country.  We were very satisfied with the coverage and services they provided; however, three years ago ESIP, a new competitor in the market, provided a competitive quote.  ESIP was selected due to the reduction in premium cost.  Overall coverage and service from ESIP has been satisfactory. 

This year we were contacted again by VFIS who requested to provide a quote for our consideration.  VFIS returned a very competitive quote in the amount of $74,075 (includes brokerage fee) which is 7% less than the renewal quote provided by ESIP in the amount of $79,316 (includes brokerage fee).  ESIP’s renewal quote increased by 4.7% from last year’s renewal of $75,575 (includes brokerage fee).  Currently insured are 23 vehicles valued at $7,130,605, down one vehicle taken out of service from 2007 values of $7,200,605.      

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 126% from $108,325,729 to $244,483,616 over the last 10 years due to the addition of facilities as well as inflation.

Recommended Action

Staff recommends renewing coverage for Building/Property with Affiliated FM for the insurance period of 7/1/08 to 7/1/09 for an estimated premium of $114,018.  Staff further recommends binding coverage for Fire and Medical Auto/Portable Equipment/General, Management, and Professional Liability coverage with VFIS for the insurance period of 7/1/08 to 7/1/09 at an estimated premium of $74,075.  Should you have further questions, please do not hesitate to contact Frank or me.

	1998-1999	1999-2000	2000-2001	2001-2002	2002-2003	2003-2004	2004-2005	2005-2006	2006-2007	2007-2008	2008-2009
Insurer	C N A	C N A	C N A	C N A	Travelers	Travelers	St.Paul-Travelers	Affiliated FM	Affiliated FM	Affiliated FM	Affiliated FM
Insured Schedule Property Value Total	$  108,325,729	$  108,325,729	$128,670,158	$136,270,158	$180,335,089	$190,502,081	$196,153,717	$204,444,292	$223,136,236	$234,501,775	$244,483,616
Deductible	$        10,000	$          10,000	$      10,000	$      10,000	$      25,000	$      25,000	$      25,000	$      25,000	$      25,000	$      25,000	$         25,000
Rate per $100 Scheduled Property Value	0.0380	0.0395	0.0407	0.0489	0.0666	0.0714	0.0725	0.0580	0.0538	0.0517	0.045
Premium	$          41,184	$          42,824	$      52,305	$      66,631	$     120,026	$     135,985	$     142,206	$     118,500	$     120,000	$     121,227	$       114,018

	1998-1999	1999-2000	2000-2001	2001-2002	2002-2003	2003-2004	2004-2005	2005-2006	2006-2007	2007-2008	2008-2009	2008-2009
	C N A	C N A	National Indemnity	National Indemnity	National Indemnity	VFIS	VFIS	ESIP	ESIP	ESIP	ESIP Proposal	VFIS Proposal
Auto/Professional Liability	$    32,203	$    40,909	$   107,171	$   140,000	$   182,000	$    63,397	$    66,802	$    51,988	$    43,685	$    48,330	$    62,806	$    55,913
Portable Equipment (Inland Marine)	Auto Policy Only	Auto Policy Only	Auto only policy	Auto only policy	Auto only policy	Not Elected	Not Elected	Not Elected	$      9,544	$    11,667	Combined	$      1,652
Premium	$    32,203	$    40,909	$   107,171	$   140,000	$   182,000	$    63,397	$    66,802	$    51,988	$    53,229	$    59,997	$    62,806	$    57,565
Brokerage Fee	Percentage of premium	Percentage of premium	Percentage of premium	Percentage of premium	Percentage of premium	$    10,000	$    10,500	$    14,000	$    15,000	$    15,575	$    16,510	$    16,510
Total	$    32,203	$    40,909	$   107,171	$   140,000	$   182,000	$    73,397	$    77,302	$    65,988	$    68,229	$    75,572	$    79,316	$    74,075