AGENDA REPORT
Meeting Date: June 27, 2024
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 PROCUREMENT RECOMMENDATIONS; AND
AUTHORIZE THE CITY MANAGER TO BIND INSURANCE COVERAGE
IN THE NOT-TO-EXCEED AMOUNT OF $15,250,000; AND
AUTHORIZE A PURCHASE ORDER TO ALLIANT INSURANCE
SERVICES FOR INSURANCE PREMIUMS AND BROKER FEES FOR
FISCAL YEAR 2024/25 IN THE NOT-TO-EXCEED AMOUNT OF
$15,250,000.
Attachment: None
RECOMMENDATION
Staff recommends the City Council authorize the Litigation Committee (Mayor Lester Friedman and Councilmember Craig Corman) to make insurance procurement recommendations for Fiscal Year 2024/25 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 in the total not-toexceed amount of $15,250,000.
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 Meeting Date: June 27, 2024
may allege liability for injury or damages suffered by another party (e.g., employment practices liability, law enforcement liability, vehicle collisions, dangerous conditions, trip and falls, sewer backups 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 are renewed 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 May 22, 2024 (renewal strategy and state of the market). Mayor Lester Friedman, Councilmember Craig Corman, City Manager Nancy Hunt-Coffey, 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 discussed the recommended insurance budget, the existing terms of each line of coverage and the early pricing estimates for renewing all coverage lines at expiring as presented below. Mayor Friedman and Councilmember Corman directed the City’s Risk Manager and Broker to proceed with renewing all lines at expiring limits and coverage terms and agreed to recommend the approval of FY2024/25 insurance coverage as presented as long as final premiums did not exceed the $15,250,000 budget.
Lines of Coverage Fiscal Year 2023/24 and Proposed Fiscal Year 2024/25 Line of Coverage 2023-2024
Limits / Deducitble
2022-23
Rating Basis
2023-24
Final Costs
on 6/30/23
2024-25
Rating Basis
2024-25
Not To Exceed
Bound
Exposure
Change
Bound Cost
Change
Bound %
Change
Excess Liability $46,5M / $3M Ded Application $7,089,667 Application $8,300,000 N/A $1,210,333 17% Property, Boiler &
Machinery
$1BIL / $25K Ded $1,083,612,520 $1,304,824 $1,191,867,751 $1,393,706 10% $88,882 7% Difference in Conditions EQ - $200M Limit /
5% Ded &
Flood $10M Limit / $100K Ded
$952,401,487 $4,729,742 $1,038,314,013 $4,310,000 9% ($419,742) -9% Excess Workers'
Compensation
WC - Statutory Limits
SIR $5M for 7706/7720
SIR $1M All Other &
EL $1M Limit / SIR $1M
$104,516,620 $219,490 $118,757,128 $244,687 14% $25,197 11% Med Mal (Fire) Primary $2M / $4M AGG / $5K
Ded & Excess $1M / $1M AGG /
XS Primary $2M
Application $19,336 Application $21,270 N/A $1,934 10%
Financial Protections Crime $5M Limit / $25K Ded &
XS Cyber $2M XS $2M
Application $136,138 Application $147,029 N/A $10,891 8% Total (including estimated subtotal) $13,499,197 $14,416,692 $917,495 6.80% City of Beverly Hills
2024-2025 Summary of Renewal Pricing
As of: June 12, 2024
Meeting Date: June 27, 2024
The City’s insurance broker, Conor Boughey presented the following marketing results, options and recommendations to the Committee for Fiscal Year 2024/25.
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 ensure 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 at more than 25% to 50%.
Despite the market and prior challenging renewals due to large losses in Fiscal Years 2018/19 and 2019/20, the City’s renewal outlook for FY 2024/25 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 selfinsured 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 Error and Omissions, General Liability, Auto Liability, Employment Liability and Law Enforcement Legal Liability. Final Fiscal Year 2023/24 pricing for $43,500,000 was $7,089,667 (overall cost increase of 4% from FY 2022/23). This modest increase was achieved by competing quotes in the lead layer, resulting in the city adding Safety National as the lead layer and moving Munich Re into an excess position, with both layers reducing the cost of coverage from the incumbent providers.
For the July 1, 2024, renewal, the Liaison Committee provided direction to continue to obtain lead layer coverage through Safety National at $3 million SIR with Munich Re agreeing to follow form in the second position within the excess layer offering the same terms and conditions as expiring coverage. The Committee also provided direction to obtain limits at or above $46,500,000 million (including SIR) from the domestic insurance market as long as the total insurance budget did not exceed $15,250,000. This direction will result in an expected not-to-exceed cost for General Liability insurance of $8,300,000.
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), a group purchase no risk sharing program consisting of more than 200 California municipalities. 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, money and securities, and boilers and machinery.
Meeting Date: June 27, 2024
All-risk property coverage specifically excludes property damage resulting from an earthquake or flood, which is covered under the difference in conditions coverage.
All-Risk property insurance pricing is primarily impacted by the continued hardening of the California market (wildfires, catastrophic global events, social unrest) and total insured values. In December 2019, the City completed property appraisals of its inventory resulting in new values ($1.027 Billion over expiring $471,212,000). In 2020/21, with such a drastic increase in values, 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.
This allowed the premium impact of the new TIV at that time to increase more gradually over two policy periods.
The City currently carries limits of $100,000,000 covering all locations up to the policy limit with a $25,000 deductible based on Total Insured Value (TIV) of $1.027 Billion.
This year the City’s premium is based on Total Insured Values (TIV) of $1,191,867,751, which is a 4.22% increase year over year. The Premium is based on the TIV and the Account Rate, which is $0.1169 per $100 of reported values (rate increased 2.48%).
These results show a softening in the property market compared to prior terms. Coverage terms largely remain the same. The chart below shows costs for coverage at expiring with limits of $1,000,000,000.
City of Beverly Hills 2023-2024 2024-2025 Variance
Total Insurable Values
(TIV)*:
$ 1,143,598,150 $ 1,191,867,751 4.22%
Property Premium: $ 1,252,155 $ 1,343,762 7.31%
Cyber Liability Premium: $ 42,526 $ 37,787 -11.14%
Pollution Liability Premium: $ 10,142 $ 12,156 19.85%
Total Account Rate ($/100): 0.1140 0.1169 2.48%
Total Annual Cost: $ 1,304,824 $ 1,393,706 6.81%
*An appraisal of all properties in the City’s inventory will be completed in 2025 to be applied to FY 2025/26 renewal.
The Liaison Committee provided direction to maintain the current $25,000 deductible and policy limits of $1,000,000,000. This direction will result in an expected not-to-exceed cost for Property Insurance of $1,393,706.
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, 2024
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/property) and a $5,000,000 maximum deductible per occurrence. This coverage also includes a $10,000,000 limit for Flood.
Like All-Risk Property Insurance, the key renewal issues for Earthquake coverage in 2022/23 was the increase in the city’s property values and subsequent trending. In FY2020/21, Total Insured Values (TIV) increased from $475,121,081 to $881,853,229 as a result of the 2019 appraisals. The city applies trending to the values between appraisal which are on a 5-year cycle to ensure replacement values are appropriately considered.
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 relate 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 affecting the Earthquake placement most significantly.
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. 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.
Estimates to purchase additional limits above $200,000,000 are $35,000 per $10,000,000 of coverage.
The Liaison Committee discussed the modeling information and the costs to purchase additional limits and provided direction to bind coverage at expiring with 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 including $10,000,000 limits for flood.
The 2024/25 premium is based upon TIV of $1,038,314,013 which includes trending and City reported updates for property values. The FY 23/24 expiring premium was $4,729,742 and the renewal premium to purchase limits of $200,000,000 for FY 2024/25 is estimated not-to-exceed $4,310,000.
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
Meeting Date: June 27, 2024
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 per occurrence statutory limits for State-mandated coverage and through Safety National with a $1,000,000 (non-safety) and a $5,000,000 (safety) selfinsured retention*. The city’s workers compensation coverage includes two types of coverage for workers compensation which includes state-mandated medical care and costs, lost wages, disability benefits, ongoing care and legal fees for work-related injuries and employers’ liability* ($1,000,000/occurrence). Employers’ Liability protects the employer against instances in which an employee’s injury or disease is not subject to the workers’ compensation laws which make workers’ compensation an employee’s sole remedy. Like Fiscal Year 2023/2024, 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 a reduction in payroll during the policy year. Workers Compensation is rated by City Payroll, which was up 14% this year. The premium is quoted with an increase of 11% due to a reduction in rate.
The Liaison Committee provided direction to maintain coverage per the expiring terms and recommends binding coverage at the quoted amount of $244,687.
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
2024/25 $1,000,000 $5,000,000 $244,687
* 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. The liaison committee indicated an interest in learning more about JPA options and employers’ liability coverage in FY2024/25.
Medical Malpractice (Nurse Practitioner Program Exposures) The City’s current excess general liability coverage is limited to incidental medical malpractice related to emergency services and excludes coverage for nurse practitioners (NP) and the scope of the NP 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.
The city began to purchase medical malpractice coverage in FY2021/22 with limits of $2,000,000 (with a $5,000 deductible). and increased limits in FY2022/23 to a $5,000,000 limit (with $5,000 deductible) above all NP in the program. Specifically, this option covers 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 existing coverage terms are provided by two $2.5 million dollar layers of insurance. For 2024/25 the renewal premium is quoted at $21,199 over expiring ($19,336) which is a great result as the NP utilization continues to expand.
Meeting Date: June 27, 2024
Comparison 2023/24 2024/25
Annual Premium $19,336 $21,270
The Liaison Committee provided direction to renew coverage at expiring as quoted. This direction will result in an expected not-to-exceed cost for Medical Malpractice insurance of $21,270.
Named Insureds for this policy include:
• City of Beverly Hills
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 with the city’s All-Risk insurance program, this is a group purchase program with no risk sharing and no possibility of assessment. Coverage includes fraudulent instruction, employee theft, and vendor theft, loss of third-party property, impersonation fraud, and faithful performance of duty.
The ACIP renewal premium for Fiscal Year 2024/2025 is $26,803. The total limit remains $5,000,000 with a $25,000 deductible per claim.
Comparison 2023/24 2024/25
Annual Premium $136,138 $147,029
Last year, the Liaison Committee provided direction to increase the fraudulent impersonation sublimit under ACIP from $250,000 to $500,000 ($7,500). Fraudulent impersonation coverage and otherwise bind coverage at expiring and as quoted. The Liaison Committee recommended the city continue purchasing this option and renew all coverage at expiring for FY2024/25.
The Financial Protections line item on the Summary of Renewal Pricing also includes network coverage, which is renewing without an increase.
The Liaison Committee provided direction to maintain Financial Protections coverage per the expiring terms. This direction will result in an expected not-to-exceed cost for Financial Protections of $147,029.
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, 2024
Conclusion
Understanding the complexity and timing constraints associated with renewing the City’s policies (July 1, 2024 is the effective date of the insurance renewals and the insurance must be bound not later than June 30, 2024), 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 2024/2024.
FISCAL IMPACT
The City’s Fiscal Year 2024/25 Proposed Operating Budget includes insurance premiums not to exceed $15,250,000 ($15,025,00 and $225,000 to the General Liability Fund and the Workers' Compensation Fund, respectively). If the budget is approved by City Council on June 27, 2024, this amount will be available to pay insurance premiums.
Shelley Ovrom,
Director of Human Resources
Approved By