Agenda Report
Fullerton City Council
MEETING DATE: AUGUST 1, 2023
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: ERIC LEVITT, CITY MANAGER
PREPARED BY: EDDIE MANFRO, DIRECTOR OF HUMAN RESOURCES
PAMELA MACKIE, SENIOR HUMAN RESOURCES / RISK MANAGEMENT ANALYST
OLGA VELLANOWETH, HUMAN RESOURCES / RISK MANAGEMENT ANALYST I SUBJECT: PROPERTY, CASUALTY AND WORKERS’ COMPENSATION INSURANCE PROGRAM REPORT
SUMMARY
This report reviews the Fiscal Year (FY) 2023-24 City of Fullerton property, casualty and workers’ compensation insurance programs.
RECOMMENDATION
Receive and file.
CITY MANAGER REMARKS
The City Manager recommends approval.
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statements:
Fiscal and Organizational Stability
Infrastructure and City Assets.
FISCAL IMPACT
The cost of the various property and casualty insurance coverages funded by the City Liability Program totals $4,557,042.33. The City budgeted $5,513,252 for FY 2023-24, representing a $956,209.67 budget savings.
The premium for excess workers’ compensation insurance totals $185,758. The FY 2023-24 budget has sufficient funding to cover these costs.
DISCUSSION
The City of Fullerton risk financing strategy combines self-insurance with reinsurance policies to protect against exposure due to financial or property losses and employee workers’ compensation losses. The Self-insured retention (SIR) pays the portion of losses paid from City funds.
The City has been a member of and has obtained reinsurance coverage and other group purchase coverages through the Independent Cities Risk Management Authority (ICRMA) risk pool since 1993. ICRMA is a joint powers authority with member cities including Adelanto, Bell, Downey, El Monte, El Segundo, Fullerton, Glendora, Hawthorne, Huntington Park, Inglewood, Lynwood, San Fernando, Santa Ana and South Gate.
The City purchases certain lines of insurance coverage outside of the ICRMA program, including Airport Liability, Earthquake Insurance / Flood Insurance, commercial general liability insurance covering City Underground Storage Tanks, commercial general liability insurance for the City compressed natural gas (CNG) Station and Unmanned Aircraft System / Drone Insurance through broker Arthur J Gallagher & Co (AJG & Co.). AJG & Co. services the ICRMA risk pool as well as the City of Fullerton.
The final cost of the various property and casualty insurance coverages funded by the City’s Liability Program totals $4,557,042.33. The City budgeted $5,513,252 FY 2023-24, representing $956,209.67 budget savings achieved by lowering the Member Retained Limits (MRL) to $4 million through participation in the Independent Cities Risk Management Authority (ICRMA) liability risk pool. The FY 2022-23 MRL totaled $8 million, with an SIR of $4 million. The City purchased $4 million in excess insurance outside of ICRMA to close the gap between the $4 million SIR and $8 million MRL. The premium cost would have totaled $6,448,529.33 if the City had maintained this structure, resulting in a budgeted $935,277.33 shortfall. Staff worked with ICRMA and the AJG & Co. to reduce the ICRMA MRL to $4 million and take advantage of the ICRMA’s purchasing power.
The following summarizes each line coverage purchased by City either through ICRMA, AJG & Co. or independently:
Excess Liability Insurance
The SIR for the City’s liability insurance program totals $4 million. The City purchases excess liability coverage in various tiers up to $35 million through the ICRMA risk pool. The FY 2023-24 renewal totals $3,144,502 million, based on the City’s ability to attach to the ICRMA risk pool at $4 million rather than $8 million.
Workers’ Compensation Insurance
The SIR for the workers’ compensation program equals $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 renewal for FY 2023-24 totals $185,758.
Underground Storage Tank Insurance
The City purchases coverage compliant with Environmental Protection Agency and State Water Resources Control Board requirements for owners and operators of underground storage tanks. The City 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 FY 2023-24 costs $7,507.
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 FY 2023-24 costs $2,033.83.
Airport Liability Insurance
The City directly purchases insurance to protect against airport liability exposures. ACE Property and Casualty Insurance Company currently provides the Airport Liability Insurance. The City has a three-year rate guarantee from July 1, 2021 through June 30, 2024 with a $19,842 per annual installment.
Earthquake Insurance / Flood Insurance
City Council approved the purchase of Earthquake and Flood insurance for the first time in more than a decade in FY 2018-19. 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 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. Additionally, a review of losses related to the 2014 La Habra earthquake revealed significant exposure to water main losses due to earth movement. The policy carries a sublimit of $10 million for the water main system in consideration of this exposure. The renewal for FY 2023-24 totals $936,358.50.
Unmanned Aircraft System / Drone Insurance Policy
The City began purchasing unmanned aircraft system / drone liability insurance in 2019 when the police department launched drone operations. The current policy with United States Aircraft Insurance Group pays $2 million per occurrence. The renewal for FY 2023-24 costs $11,464.
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 renewal for FY 2023-24 equals $390,039.
Crime Insurance
This policy protects the City against the risk of loss due to employee acts of dishonesty or theft by an outside party. The City joined the ICRMA crime protection group purchase program in July 2016. The per loss limit totals $5 million. The renewal for FY 2023-24 costs $5,613.
Cyber Risk Liability Insurance
The City began purchasing cyber risk liability coverage, insurance for failure to protect or unauthorized release of personal information of employees or customers, in FY 2012-13. ICRMA began offering this coverage as group coverage in FY 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 renewal for FY 2023-24 costs $31,517.
Terrorism Coverage
The City purchases terrorism coverage through ICRMA. The program provides coverage for property and liability claims in connection with a terrorist event. The coverage with Lloyd’s Syndicate #2623/623 (Beazley) provides a $10 million per occurrence limit and a $10 million annual program aggregate limit. The renewal for FY 2023-24 costs $8,166. cc: City Manager Eric J. Levitt
Insurance Program Report and Recommendations
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