AGENDA REPORT
Meeting Date: June 27, 2023
Item Number:
To: Honorable Mayor & City Council
From: Shelley Ovrom, Director of Human Resources
Sharon L’Heureux Dressel, Risk Manager
Subject: AUTHORIZE THE LITIGATION COMMITTEE TO MAKE INSURANCE PROCURMENT RECOMMENDATIONS; AND
AUTHORIZE THE CITY MANAGER TO BIND INSURANCE
COVERAGE IN THE NOT-TO-EXCEED AMOUNT OF $14,000,000;
AND
AUTHORIZE A PURCHASE ORDER TO ALLIANT INSURANCE
SERVICES FOR INSURANCE PREMIUMS AND BROKER FEES FOR
FISCAL YEAR 2023/24.
Attachments: None
RECOMMENDATION
Staff recommends Council authorize the Litigation Committee (Mayor Dr. Julian Gold and Vice Mayor Lester Friedman) to make insurance procurement recommendations for FY 2023/24 and authorize the City Manager to bind General Liability, Property, Earthquake, Financial Protection, Excess Workers’ Compensation and Medical Liability insurance, and approve the related purchase order to Alliant Insurance Services for payment of insurance premiums and annual broker fees.
INTRODUCTION
The Risk Management Division of Human Resources is responsible for identifying the City’s exposures and procuring and monitoring insurance coverage that will minimize financial loss to the City. The primary exposures include situations or conditions which may allege liability for injury or damages suffered by another party (e.g., employment practices liability, vehicle collisions, dangerous conditions, trip and falls, sewer backups E-26
Meeting Date: June 27, 2023
and water main breaks); damage or loss of property from fire, theft, flood or earthquake; and losses associated with employee injury, disability, or death.
DISCUSSION
The City has consistently and without interruption purchased insurance for General Liability, Property, Earthquake, Workers’ Compensation and additional supplemental coverage including, but not limited to, Financial Protections and Medical Malpractice.
These policies renew annually with an effective date of July 1 and are procured through the City’s insurance broker Alliant Insurance Services.
In 2018, in preparation for presenting insurance renewal options to Council, Staff began the practice of meeting with the Litigation Liaison Committee to review marketing efforts, renewal options and recommendations. Continuing that practice, Staff met with the Committee on April 17, 2023 (renewal strategy and state of the market) and June 9, 2023 (FY 2023/24 renewal presentation). Mayor Dr. Julian Gold, Vice Mayor Lester Friedman, Assistant City Manager Ryan Gohlich, City Attorney Larry Wiener, Finance Director Jeff Muir, Human Resources Director Shelley Ovrom, Risk Manager Sharon L'Heureux Dressel, and Conor Boughey, the City’s broker, attended.
The Committee evaluated the Fiscal Year 2023/24 proposals and pricing quoted below.
Final pricing will be received upon binding following authority granted by the City Council on June 27, 2023. Final premiums will not exceed the $14,000,000 budget.
Lines of Coverage Fiscal Year 2022/23 and Proposed Fiscal Year 2023/24 Line of Coverage 2022-23
Rating Basis
2022-23
Cost
2023-24
Rating Basis
2023-24
Estimated Cost
on 6/22/23
Bound Exposure
Change
Bound Cost
Change
Bound %
Change
Excess Liability Application $6,835,576 Application $7,600,000 N/A $764,424 11% Property, Boiler &
Machinery
$1,083,612,520 $998,337 $1,143,598,150 $1,304,824 6% $306,488 31% Difference in Conditions $952,401,487 $3,291,909 $990,044,412 $4,500,000 4% $1,208,091 37% Excess Workers'
Compensation
$104,516,620 $209,000 $109,742,451 $219,490 5% $10,490 5% Med Mal (Fire) Application $18,068 Application $19,336 N/A $1,268 7% Financial Protections Application $126,948 Application $136,128 N/A $9,180 7% Total (including estimated subtotal) $11,479,838 $13,779,779 $2,299,941 20.03% City of Beverly Hills
2023-2024 Summary of Renewal Pricing
As of: June 22, 2023
The City’s insurance broker, Conor Boughey, and Risk Manager Sharon Dressel presented the following marketing results, options and recommendations to the Committee for Fiscal Year 2023/24.
Meeting Date: June 27, 2023
Excess General Liability
Carriers’ concerns driven by increased large losses, joint and several liability, medical costs, high value judgements, “social inflation”, law enforcement liability, and civil unrest have hardened the excess liability insurance market for California municipalities to historic levels. As a result, carriers are declining to insure California municipalities, and those that are continuing to offer terms have drastically reduced the limits they previously offered while also increasing rates. These conditions are producing rate increases for many more than 50% to 100%.
Despite the market and prior challenging renewals due to large losses in Fiscal Years 2018/19 and 2019/20, the City’s renewal outlook is favorable, and the City will fare better than many similar agencies in terms of pricing. The City’s position in the market results from having already realized the costs of its large loses and gaining the favor of underwriters who are pleased with the City’s efforts to reduce and mitigate losses.
The City currently purchases liability limits of $46,500,000 inclusive of a $3,000,000 ($5,000,000 Loma Vista) self-insured retention (SIR). These limits represent the maximum available from domestic carriers, and the utilization of international markets like Lloyds of London. The coverages provided within these policies are Public Officials E&O, General Liability, Auto Liability, Employment Liability and Law Enforcement Legal Liability. Final Fiscal Year 2022/23 pricing for $46,500,000 was $6,835,576 (overall cost increase 48%). The city continued its partnership with Munich Re in the lead layer and they offered the same terms and conditions as expiring coverage and received interest for primary layer from Safety National.
For the July 1, 2023 renewal, the Liaison Committee provided direction to obtain lead layer coverage with Safety National if Safety National offered a $3 million SIR that was silent on Loma Vista and Munich Re agreed to follow form in the second position offering the same terms and conditions as expiring coverage.
They also provided direction to obtain limits at or above $46,500,000 million (including SIR) from the domestic insurance market and provided authority to spend up to the indicated $ 7,600,000.
Named Insureds for this policy include:
• City of Beverly Hills
• Beverly Hills Community Charitable Foundation
• The Parking Authority of the City of Beverly Hills
• Beverly Hills Public Financing Authority
Property Insurance
The City obtains its all-risk property insurance coverage through Alliant Property Insurance Program (APIP). All-Risk coverage protects property (real property, fine art, trees, personal property including City vehicles) against all-risks of physical damage or loss. It also includes coverage for related or resulting matters such as business interruption, debris removal, errors and omissions, pandemic, money and securities, and boilers and machinery. All-risk property coverage specifically excludes property damage resulting from an earthquake or flood, which is covered under the difference in conditions coverage.
Meeting Date: June 27, 2023
Renewal pricing for the City was primarily impacted by the continued hardening of the California property insurance market (wildfires, catastrophic global events, social unrest) and the new values resulting from the completion of property appraisals in December 2019. In 2020/21, the City was fortunate to have the underwriters agree to calculate the premium using only 60% ($884,727,232) of the new values ($1.027 Billion) prior to binding and adding the remaining 40% of the new values after binding for no additional premium. After binding, the City’s Total Insured Value (TIV) increased to $1.027 Billion and covered all locations up to the policy limit.
In 2022/23, under the direction of the Liaison Committee the City increased policy limits by $75,000,000 for total coverage of $750,000,000.
This year the City’s premium is based on Total Insured Values (TIV) of $1,143,598,150, which is a 5.5% increase year over year. The Premium is based on the TIV and the Account Rate, which is $0.1098 per $100 of reported values (rate increased 19.19%).
With the understanding of current market conditions, this is a favorable renewal, and the coverage terms largely remain the same. The chart below shows costs for coverage at expiring with limits of $750,000,000 and the quote in the chart above is cost to purchase limits of $1,000,000,000.
The Liaison Committee provided direction to maintain the current $25,000 deductible and increase policy limits to $1,000,000,000.
Named Insureds for the All-Risk Property policy include:
• City of Beverly Hills
• Beverly Hills Community Charitable Foundation
• The Parking Authority of the City of Beverly Hills
• Beverly Hills Public Financing Authority
Meeting Date: June 27, 2023
Difference in Conditions – Earthquake (Includes $10 Million for Flood) The City currently purchases Earthquake limits of $200,000,000 with a 5% per unit/property deductible (minimum of $100,000) and a $5,000,000 maximum deductible per occurrence. This coverage also includes a $10,000,000 limit for Flood.
Similar to All Risk Property, the key renewal issues for Earthquake coverage in 2022/23 was the increase in values. Total Insured Values (TIV) increased from $475,121,081 to $881,853,229. The TIV for earthquake does not match the TIV for property insurance because the values for autos, fine art and trees, which are covered under All Risk policy, were removed. This year, the challenges for obtaining Earthquake coverage relates to the state of the insurance market and their reinsurers. Across the property market, and particularly for catastrophically exposed placements, there is a significant restriction of available coverage options and increasing rates. Within the City’s portfolio of insurance placements, this issue is effecting the Earthquake placement most significantly.
The 2023/24 premium is based upon TIV of $990,742,451 which includes 7.5% trending for property values. The expiring premium was $3,291,909 and the renewal budget will not exceed $4,500,000 to purchase the maximum limits available for this total.
Catastrophic incident modeling is utilized to help determine the likelihood of loss and severity of damage projected for scheduled and owned property locations. Catastrophic incident modeling or a “Probable Maximum Loss” (PML) study is an insurance industry tool used for determining earthquake and hurricane exposures. The modeling takes into consideration the property location, value, construction type, fault lines, soil condition and other factors that help evaluate the susceptibility to loss for the City’s owned properties.
Modeling conducted using the updated values supports a recommendation to continue to purchase limits at $200,000,000. We estimate that additional limits above $200,000,000 can be purchased for $35,000 per $10,000,000 of coverage. Using Catastrophic Modeling Software, the city’s portfolio of locations would expect to have an estimated $68,000,000 of damage every 250 years, $121,000,000 every 500 years, and $180,500,000 every 1000 years. These ranges are used as a guide to determine the appropriateness of the limit purchased.
The Liaison Committee provided direction to bind expiring coverage as proposed in an amount not to exceed $4,500,000 estimate.
Named Insureds for this policy includes:
• City of Beverly Hills
• Beverly Hills Community Charitable Foundation
• The Parking Authority of the City of Beverly Hills
• Beverly Hills Public Financing Authority
Excess Workers’ Compensation
For the period July 1, 2003 - June 30, 2018, the city retained, without the benefit of any excess coverage, 100% of its workers’ compensation exposure. The City began purchasing excess workers’ compensation insurance from Safety National on July 1, 2018.
The city continues to obtain statutory limits coverage through Safety National with a $1,000,000 (non-safety) and a $5,000,000 (safety) self-insured retention*. Like Fiscal Meeting Date: June 27, 2023
Year 2022/2023, renewing coverage includes a negotiated reduction in minimum premium, which will allow the City to receive a rebate up to 10% of paid premium if the City experiences reduction in payroll during the policy year. Pricing of $219,490 for this year is 5% more than expiring due to an increase in payroll.
The Liaison Committee provided direction to maintain coverage per the expiring terms and recommends binding coverage at the quoted amount of $219,490.
Program Year SIR Non-Safety SIR Safety Premium
2021/22 $1,000,000 $5,000,000 $174,027
2022/23 $1,000,000 $5,000,000 $209,000
2023/24 $1,000,000 $5,000,000 $219,490
*A $1,000,000 self-insured retention is the minimum attachment point for an excess insurance carrier. If the City wanted to consider a lower attachment point, it would need to consider a Joint Powers Authority.
Financial Protections
The City’s Financial Protections coverage includes municipal crime and network protection coverage. Municipal crime coverage is provided through the Alliant Crime Insurance Program (ACIP) which is a group purchase program insured by Lexington. As a group purchase program there is no risk sharing and no possibility of assessment.
Coverage includes fraudulent instruction, employee theft, and vendor theft, loss of thirdparty property, impersonation fraud, and faithful performance of duty.
The ACIP renewal premium for Fiscal Year 2023/20243 reflects an increase in coverage limits which required some additional premium to fund. The total limit remains $5,000,000 with a $25,000 deductible per claim.
Comparison 2022/23 2023/24
Annual Premium $23,147 $22,290
Last year, the Liaison Committee provided direction to increase the fraudulent impersonation sublimit from $250,000 to $500,000 for $7,500 and otherwise bind coverage at expiring and as quoted. The Liaison Committee recommended the city continue purchasing this option.
The Financial Protections line item on the Summary of Renewal Pricing also includes network coverage, which is renewing flat, with several options under consideration.
The Liaison Committee provided direction to maintain coverage per the expiring terms and recommends binding coverage at the quoted amount of $22,290.
Named Insureds for these policies include:
• City of Beverly Hills (existing)
• Beverly Hills Community Charitable Foundation
• The Parking Authority of the City of Beverly Hills
• Beverly Hills Public Financing Authority
Meeting Date: June 27, 2023
Medical Malpractice (Nurse Practitioner Program Exposures) The City’s current excess liability coverage is limited to incidental medical malpractice related to emergency services and excludes coverage for nurse practitioners (NP) and the scope of this program. While each NP is required to carrier their own coverage ($1M per occurrence/$3M aggregate) and name the city as an additional insured, the City is without coverage if sued for the professional acts of NP under the supervision of the Beverly Hills Fire Department.
This coverage will provide a $5,000,000 (with $5,000 deductible) limit above all NP in the program. Specifically, this option will cover the professional liability exposure to the City arising out of the acts of the nurse practitioners, excess of any insurance they obtain.
This program has six nurse practitioners, and their professional acts under the supervision of the Beverly Hills Fire Department would be addressed by this placement.
The coverage terms are provided by two layers of insurance, for a total premium of $18,068 for 22/23 and renewing at $19,336, which is a great result as the NP utilization continues to expand.
The Liaison Committee provided direction to bind coverage as proposed.
Named Insureds for this policy include:
• City of Beverly Hills
Conclusion
Understanding the complexity and timing constraints associated with renewing the City’s policies (July 1, 2023 is the effective date of the insurance renewals and the insurance must be bound not later than June 30, 2023), the Committee recommended that staff provide Council with an overview of the insurance marketing strategy and program recommendations in order for Council to authorize the Committee to review and approve staff recommendations and provide City Manager authority to bind insurance coverage for Fiscal Year 2023/2024.
FISCAL IMPACT
The City’s Fiscal Year 2023/24 Proposed Operating Budget includes insurance premiums not to exceed $14,000,000 ($13,770,000 and $230,000 to the General Liability Fund and the Workers' Compensation Fund, respectively). If the budget is approved by City Council on June 27, 2023, this amount will be available to pay insurance premiums.
Jeff Muir,
Director of Finance
Shelley Ovrom,
Director of Human Resources
Approved By Approved By