Agenda Report
Fullerton City Council
MEETING DATE: JUNE 7, 2022
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: ERIC J. LEVITT, CITY MANAGER
PREPARED BY: eddie Manfro, director of human resources
PAMELA MACKIE, HR / RISK MANAGEMENT ANALYST
OLGA VELLANOWETH, RISK MANAGEMENT SPECIALIST
SUBJECT: insurance program report and recommendations
SUMMARY
Consideration and approval of recommendations contained in the Fiscal Year (FY) 2022-23 City of Fullerton property and casualty insurance programs report.
RECOMMENDATION
Authorize City Manager, or designee, to bind excess workers’ compensation insurance with maximum limit set to statutory benefit maximums and $750,000 lower limit for non-safety employees and $1 million for safety employees with Safety National Insurance Company at a $189,690 premium cost.
Authorize City Manager, or designee, to bind excess liability insurance with $4 million to $8 million limit per occurrence with Princeton Excess & Surplus Lines Insurance Company and Gemini Insurance Company at a $3,118,150 premium cost.
Authorize City Manager, or designee, to bind underground storage tank liability with $1 million per storage tank incident limit with Ace Insurance Company at $7,080 premium cost.
Authorize City Manager, or designee, to bind CNG general liability with $3 million aggregate limit with Nautilus Insurance Company at $2,295 premium cost.
Authorize City Manager, or designee, to bind earth movement and flood insurance with Endurance American Specialty Insurance Company, Landmark American Insurance and Axis Surplus Insurance Company with a combined limits of $20 million for a combined premium of $705,709.62.
Receive and file the City’s insurance programs report which includes information regarding insurance coverage purchased through the City’s participation in the Independent Cities Risk Management Authority (ICRMA) including the purchase of excess liability insurance above the $8 million per occurrence, All Risk Property and Equipment Coverage, Auto Physical Damage Insurance, Crime Insurance, Cyber Liability Insurance and Terrorism Insurance. In addition, the report provides information regarding insurance for Unmanned Aircraft System – Drone, which will renew in August.
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statements:
Fiscal and Organizational Stability
Infrastructure and City Assets.
FISCAL IMPACT
The projected cost of the various property and casualty insurance coverages funded by the City’s Liability Program totals $5,319,295.62. The budget allocation submitted for these purchases is $5,081,961. Although this amounts to a projected premium budget shortfall of $237,334.62, there are sufficient funds in the Liability Program budget to cover the additional expense.
A breakdown of the City’s insurance purchases is shown in the table below:
Direct Purchase Through Broker
Premium
ICRMA Joint Purchase
Premium
Excess Liability (two policies)
$3,118,150
Excess Liability
$1,077,053
Earthquake/Flood
$705,709
Property/Automobile
$318,669
Airport Liability
$19,842
Cyber Risk Liability
$55,805
Underground Storage Tank
$7,080
Terrorism
$7,227
Unmanned Aircraft/Drone
$2,942
Crime Policy
$4,523
CNG Station
$2,295
TOTAL
$3,856,018
TOTAL
$1,463,277
The premium for excess workers’ compensation insurance totals $189,690. The proposed FY 2022-23 budget has sufficient funding to cover these costs.
DISCUSSION
The City of Fullerton’s risk financing strategy combines self-insurance with commercial insurance and reinsurance policies to protect against exposure due to financial or property losses and for employee workers’ compensation losses. The portion of losses paid from City funds is known as the self-insured retention (SIR). Staff recommendations for funding of this self-insured layer are based on projections performed annually by an independent actuary retained by the City.
The City has been a member of and has obtained excess liability coverage and other group purchase coverages through the ICRMA since 1993. ICRMA is a joint powers authority with member cities including Adelanto, Bell, Downey, El Monte, El Segundo, Fullerton, Glendora, Hawthorne, Hermosa Beach, Huntington Park, Inglewood, Lynwood, San Fernando, Santa Ana, and South Gate. The above-mentioned budgeted premium includes the estimated cost of purchasing coverage through ICRMA.
The City also secures insurance purchased outside the ICRMA programs: Excess Liability, Airport Liability, Earthquake Insurance/Flood Insurance, commercial general liability insurance covering the City’s Underground Storage Tanks, and commercial general liability insurance for the City’s CNG Station and Unmanned Aircraft System/Drone Insurance through broker Arthur J Gallagher & Co. This broker services the ICRMA account as well as the City of Fullerton.
Workers’ Compensation Insurance
The SIR for the workers’ compensation program covers $750,000 per occurrence for non-safety employees and $1 million per occurrence for safety employees. The City purchases excess insurance to protect against losses above the SIR from Safety National Insurance Company. The premium this year totals $189,690.
Excess Liability Insurance
The SIR for the liability program is $4 million per claim. The City purchases excess liability insurance to protect against claims above the SIR. For fiscal year 2022-23 we are purchasing $4 million in excess liability insurance through Gemini Insurance Company and Princeton Excess Insurance and Surplus Lines Company. The annual premium for these policies is $3,118,150.
Above the City’s $4 million SIR and $4 million in commercial liability insurance, is an additional $27 million liability limit purchased through ICRMA. The estimated cost is $1,077,053.
Underground Storage Tank Insurance
The City purchases coverage compliant with the Environmental Protection Agency and State Water Resources Control Board requirements for owners and operators of underground storage tanks. The City currently has five underground storage tanks, two at the Public Works Basque Yard, two at the Police Department and one at City Hall. This coverage provides $1 million limits per “Storage Tank Incident” with a $10,000 deductible. The renewal for 2022-23 is $7,080.
CNG Station - Commercial General Liability Insurance
The City purchases commercial general liability protection for the CNG Station. The current policy with Nautilus Insurance provides $2 million per occurrence limits with a $500 deductible. The renewal for 2022-23 is $2,295.
Airport Liability Insurance
The City directly purchases insurance to protect against airport liability exposures. ACE Property and Casualty Insurance Company currently provides our Airport Liability Insurance. The City has a three-year rate guarantee from July 1, 2021- June 30, 2024, with a $19,842 annual installment.
Earthquake Insurance / Flood Insurance
In FY 2018-19, City Council approved the purchase of Earthquake and Flood insurance for the first time in more than a decade. The City’s broker developed a program insuring a select list of properties through a combination of four policies affording $20 million limits of insurance exclusive to the City of Fullerton.
Staff identified facilities and properties key to the delivery of core City services including such properties as City Hall and other facilities housing business operations of the City; water pump stations, wells and reservoirs and facilities required for transportation and parking needs within the City. Additionally, a review of losses related to the 2014 La Habra earthquake revealed significant exposure to water main losses due to earth movement. In consideration of this exposure, the policy carries a sublimit of $10 million for the water main system. The renewal for 2022-23 is $705,709.62.
Property Insurance / Auto Physical Damage Insurance
The City purchases All Risk Property Insurance and Boiler and Machinery Insurance through ICRMA. The program provides a $250 million limit per loss with a $10,000 per member deductible. The City also purchases Auto Physical Damage Insurance through ICRMA. The program provides a $10 million limit per occurrence with a $10,000 per member deductible. The anticipated total premiums for 2022-23 is $318,669.
Crime Insurance
This policy protects the City against the risk of loss due to employee acts of dishonesty or theft by an outside party. In July of 2016, the City joined the ICRMA crime protection group purchase program. The per loss limit totals $5 million. The anticipated premium for 2022-23 is $4,523.
Cyber Risk Liability Insurance
In 2012-13, the City began purchasing cyber risk liability coverage, insurance for failure to protect or unauthorized release of personal information of employees or customers. ICRMA began offering this coverage as group coverage in 2014-15 at a much lower cost than the City’s individual coverage. The group purchase through ICRMA continues to offer the best coverage terms and pricing. The anticipated premium for 2022-23 is $55,805.
Terrorism Coverage
The Terrorism coverage is purchased through ICRMA, and the program provides coverage for property and liability claims in connection with a terrorist event. The coverage with Lloyd’s Syndicate #2623/623 (Beazley) will provide a $10 million per occurrence limit and a $10 million annual program aggregate limit. The anticipated premium for 2022-23 is $7,224.
The Unmanned Aircraft System / Drone Insurance Policy
The City began purchasing unmanned aircraft system / drone liability insurance in 2019 when the police department launched their drone operations. The current policy with United States Aircraft Insurance Group pays $2 million per occurrence. This policy will expire August 28, 2022. Staff anticipates renewing for a premium at, or near, the expiring $2,942 premium.
Insurance Program Report and Recommendations
June 7, 2022 - Page 2