City Council Memorandum
TO: HONORABLE MAYOR AND CITY COUNCIL DATE: JUNE 13, 2023 FROM: FINANCE – RISK MANAGEMENT WARDS: ALL
SUBJECT: ANNUAL INSURANCE RENEWALS INCLUDING, BUT NOT LIMITED TO, LIABILITY, PROPERTY AND EXCESS WORKER’S COMPENSATION – AMOUNT NOT TO EXCEED $6,995,108.28 PLUS A 20% CONTINGENCY OF $1,399,021.66 FOR A TOTAL AMOUNT NOT TO EXCEED $8,394,129.93 FOR FISCAL YEAR 2023-2024 ISSUES:
Approve the annual renewal of the City’s various insurance policies negotiated through the City’s Insurance Broker, Keenan & Associates, as outlined herein, beginning July 1, 2023, and ending June 30, 2024, for a total amount not to exceed $8,394,129.93 (amount pending final negotiations with insurance carriers).
RECOMMENDATIONS:
That the City Council:
Approve the annual renewal of the City' s various insurance policies negotiated through the City's Insurance Broker, Keenan & Associates, as outlined herein, for a one-year term beginning July 1, 2023, and ending June 30, 2024, for an amount not to exceed $6,995,108.28; Authorize a 20% contingency of $1,399,021.66 for potential changes and coverage enhancements for a total amount not to exceed $8,394,129.93; and Authorize the City Manager, or designee, to execute all necessary documents submitted by Keenan & Associates to renew the City's various insurance policies, as outlined herein, for the total amount not to exceed $8,394,129.93 including making minor and non-substantive changes to the insurance documents.
BACKGROUND:
The City purchases insurance policies through Keenan & Associates (“Broker”). Keenan & Associates is responsible for marketing and negotiating quotes with numerous insurance carriers to secure the best coverage at the best price. The City benefits from partnering with Keenan & Associates as Keenan’s compensation schedule is fee-based instead of a traditional broker commission structure which can add thousands of dollars to the City’s annual insurance costs.
Insurance policies are a risk management method used to transfer risk. Insurance policies also help protect highly valued City assets such as buildings and the contents inside from fire, theft, and other perils. Excess insurance policies also provide the City with an additional funding source to settle and pay third-party claims against the City if they exceed the City’s self-insurance retentions.
Renewal Timeline
Renewing the City’s insurance policies is a timely and data driven process which begins in January and ends on or before July 1st.
Time Frame
Activity
January- February
The City’s Risk Management team meets with the broker to discuss insurance market conditions and renewal strategies.
Risk Management & City staff gather exposure, loss, assets, and financial data.
Marketing Placement Specialists meet with insurers and reinsurers for current market conditions report.
The City’s Risk Management will meet with market underwriters during the annual Public Agency Risk Management Association conference (PARMA).
March- May
The City’s broker distributes submissions to the marketplace and conducts marketing trips to meet with carriers to discuss insurance submissions.
Insurance inspectors will visit City insured properties to assess conditions and make risk recommendations to the City.
Prepare analysis of all formal quotes received for review and discussion.
May- June
Finalize renewal negotiations & prepare coverage comparison of all formal quotes received.
Meet with City of Riverside to present renewal program options to City staff.
Bind renewal program and finalize subjectivities, issue binders, invoices, and renewal certificates of insurance effective July 1.
July- June of Expiring Policy Term
The City receives invoices and binders confirming coverage was bound July 1, 2023-2024.
The City receives certificates of insurance and begins to issue self-insurance certificates.
The City’s claims team updates reporting requirements per the City’s insurance carriers.
The City purchases several insurance policies to help manage risks. These policies include:
Policy Type
Coverage Provided
Property
Provides property coverage for the City’s buildings, equipment, and vehicles.
Boiler & Machinery + Pollution
Provides property, pollution, and mechanical breakdown coverage for Riverside Energy Resource Center (RERC), Clearwater, and Springs.
Difference in Conditions (DIC)
Broadens property coverage to cover earthquake coverage on select City properties.
General Liability
Covers general, auto, public officials, and law enforcement liability.
Excess General Liability
Additional limits for General Liability claims shall the primary limits be exhausted.
Excess Workers Compensation
Additional limits for workers compensation claims that exceed $3,000,000.
Aviation Hull & Liability
Provides liability to passengers and property damage to the City’s aircrafts.
Airport Premises Liability
Provides ‘bodily injury’ or ‘property damage’ that result from aviation operations.
Fine Arts- Museum
Provides coverage for fine arts and collectible objects.
Government Crime
Provides coverage for employee theft and fraud.
The City also has a Tenant User Liability Insurance Program (TULIP) which provides liability protection for the City when third parties hold special events on City owned or managed property. The TULIP program was implemented by Risk Management in 2020 and was phased out in 2022. The current platform that supports this program is called GatherGuard.
GatherGuard offers a self-serve portal where third parties who wish to use a City owned or leased property can purchase the required insurance to hold their event without having to go through a broker and incurring additional fees. There is a $1,000 minimum premium for the program which is self-funded by special event hosts who purchase a policy from the City’s GatherGuard. The City does not receive any type of compensation nor commission from GatherGuard for the event policies purchased through the program. The City is responsible for paying the difference if the policies purchased by individual special event hosts is less than $1,000 each policy term. Since the launch of the program in 2020, event hosts’ premiums for the insurance policies purchased surpassed the minimum premium amount due, relieving the City from having to pay any premiums for the maintenance of this program.
DISCUSSION:
2023 Insurance Industry Outlook
The insurance market fluctuates between soft and hard markets. Soft markets are when insurance premiums are steady, and sometimes even decrease, and a hard market is when rates increase and there are less insurance carriers writing policies for a certain type of exposure. Today, the market continues to show hard market conditions similar to the ones seen during the previous renewal cycle.
Catastrophic weather events, global inflation and inadequate insurance valuations continue to put stress on underwriting models. Unmodeled costs, social inflation, nuclear verdicts, supply chain issues, lasting impacts from the COVID-19 pandemic and the Russian/Ukraine conflict – all of which continue to compound the cost of losses. Rising interest rates have also had an adverse effect on property valuation, total value of claims, Insurance Linked Securities Fund Capacity, and the overall cost of capital.
Social Inflation also continues to wreak havoc with the Liability marketplace. Unlike general economic inflation, which insurers can mitigate using pricing models and loss reserves, social inflation can arise from factors that are difficult to foresee.
Excess Liability Market Conditions
Commercial Property Market Conditions
Workers Compensation Conditions
Increase in the number of outsized jury awards.
Legal proceedings that take longer than reasonably expected.
Rollbacks in tort reform that overturn statutory limits on non-economic damages.
Costs increased upwards of 400%, for materials and labor costs.
The average global rate increases recorded at the renewals were 37%-plus for global property catastrophe (the biggest year-over-year increase at 1/1 since 1992) Concerns with long-term claim liabilities for safety personnel.
Carriers departing public entity niche – Anticipate a 10-15% rate increase with any change in premium subject to changes in annual payroll. 2023-2024 Marketing Overview
During February 2023, the City’s Risk Management team met with Keenan & Associates, the City’s Broker, and Alliant, the City’s property program, to discuss the City’s 2023-2024 Property & Casualty Insurance Renewal Strategy.
Excess Liability
Risk Management met with multiple underwriters during PARMA 2023. Meeting with program underwriters helps build relationships as the City is able to provide detailed information about the City’s operations, loss control efforts, and safety/risk initiatives. During these meetings, Risk Management was informed that a longtime excess carrier will be rewriting their policy form which will facilitate policy issuance and most importantly include broader terms. The City’s carrier also agreed to provide the City with $10,000 in funds for safety/risk training and staff development for the remaining policy term. The City was able to use the funds to schedule eight in-person CPR/AED training courses and one in-person confined space training session. The City was also reimbursed for staff course registration.
In addition to meeting with incumbent excess liability carriers, Risk Management asked Keenan & Associates to explore alternate excess liability options that differ from the standard commercial excess policies the City has bound for the last five policy terms. Keenan is currently working on securing an indication from the Public Entity Risk Management Authority (PERMA) which is a member-directed pool dedicated to providing financially secure, stable, and cost-effective coverage programs and risk management services to its members. PERMA’s actuaries are analyzing the City’s losses and financials and will decide if they will extend the City of Riverside an offer to join the pool. If an offer is extended and the City’s broker alongside the Risk Management team believe that joining PERMA will be beneficial for the City, then Risk Management will come back to Council and make a formal presentation and staff recommendation to join. The City of Riverside would be the largest member; however, it is unsure if PERMA will extend an offer for the 23-24 policy term as current PERMA members’ experienced larger losses.
Property
The City is currently a member of Alliant’s Property Insurance Program (APIP). The APIP program provides property coverage for the City’s fleet, coverage for the City’s real property structures, pollution liability, boiler & machinery (excluding power generation facilities) and cyber liability. The City has explored alternative stand-alone policy options, but APIP has remained the most comprehensive and cost-effective option for the City.
The City has a separate property placement for RERC, Springs, and Clearwater. The property coverage for these plants is composed of a three-tiered quota share program comprised of three different insurance companies. The leading insurance company has conducted insurance surveys since they began to insurer the program in 2020. The City has successfully satisfied multiple of the Risk Improvement Actions (RIA) issued by the carrier and will continue to address sensitive RIA’s that will reduce hazards and safeguard City assets within these power generating plants.
Keenan is currently marketing this program to other carriers including markets in London to ensure that the City is indeed binding the best possible coverage for these assets. As of May 11, 2023, Keenan is yet to receive the renewal terms and conditions from the incumbent carriers.
Ancillary Lines of Coverage
The City’s broker will ask incumbent carriers to provide renewal quotes and will market the City’s other policies if they are able to identify a more competitive market. The City of Riverside will also continue to explore additional cyber limits and alternative cyber options, coverage for volunteers, and supplemental coverage for deadly weapon response incidents.
NOT-TO-EXCEED (NTE) BUDGETED PREMIUM PROJECTIONS
The not-to-exceed numbers illustrated in the following table were provided to the City by Keenan & Associates and Alliant. Keenan & Associates, along with Alliant, will present the City with a final proposal in June 2023. The City’s Risk Management staff will evaluate all policy coverage options in terms of premium, retention limits, and terms & conditions and determine which option is the most competitive and comprehensive for the City’s coverage needs.
Coverage
23-24 Premiums Paid
Potential % Increase
Potential Change in Cost
Potential $ Change
Property- All Risk (Stand-Alone)
$2,205,521.78
30%
$2,867,178.31
$661,656.53
Difference in Conditions (DIC)
$101,659.40
30%
$132,157.22
$30,497.82
Property and Boiler & Machinery for RPU Plants (RERC, SPRINGS, CLEARWATER) $1,053,512.73
30%
$1,369,566.55
$316,053.82
Pollution Liability for 3 RPU Plants (RERC, SPRINGS, CLEARWATER) $23,688.65
15%
$27,241.95
$3,553.30
Museum Fine Arts
$32,515.00
15%
$37,392.25
$4,877.25
Excess Workers Compensation
$584,281.00
15%
$671,923.15
$87,642.15
Airport Liability
$10,530.00
15%
$12,109.50
$1,579.50
Aviation Hull
$76,383.00
10%
$84,021.30
$7,638.30
Crime
$26,799.00
15%
$30,818.85
$4,019.85
Excess General Liability (Includes Law Enforcement Liability, Auto Liability, Public Officials Liability) $349,501.69
30%
$454,352.20
$104,850.51
Excess General Liability 2nd Layer
$966,440.00
30%
$1,256,372.00
$289,932.00
Broker Fee
$49,500.00
5%
$51,975.00
$2,475.00
Given the current state of the insurance market, and as of the publication date of this report, we do not yet know which of these options the City will select. It is anticipated that updated premium amounts will be finalized by July 1, 2023. City staff continues to work with the City's insurance broker to negotiate the best terms possible based on the policy specimen forms and a review of coverage, conditions, and price. Notwithstanding, City staff is seeking authority for an amount not to exceed $8,394,129.93 to finalize the insurance policy renewals for FY2023/24. 2023 Carrier Ratings & Self-Insured Retentions
AM Best is a credit rating agency that specializes in assessing the creditworthiness of insurance companies. The insurance carriers recommended by the Broker have AM Best ratings of AX or better. ("A") is the financial rating of “Excellent" and "X" is the financial size rating of the carrier equal to $500,000,000 to $750,000,000 in policy holder surplus. The APIP does not have a rating, but is underwritten by 29 different insurers, the majority of which are rated "A" or higher. The City's strategy to keep costs low while providing adequate insurance protections includes a Self-Insured Retention (SIR) for certain policies. This means the City is responsible for the first $3 million of each claim as our self-insurance deductible. The City's General Liability and Workers Compensation insurance programs contain this $3 million SIR requirement. Carrying lower SIRs ($1 million or $2 million, for example) results in significantly higher insurance premium costs for the City or are not offered by some insurance carriers. The City's other lines of insurance coverage have deductibles which vary between no deductible to a $250,000 deductible. The City regularly reviews its policies to ensure that the City has the necessary coverage to protect its assets. The Risk Management Division will continue to work with Keenan & Associates and negotiate the best possible coverages and premiums for the City of Riverside.
STRATEGIC PLAN ALIGNMENT:
The topics included in this report align with Strategic Priority 5 High Performing Government and Goal 5.5: Foster a culture of safety, well-bring, resilience, sustainability, diversity, and inclusion across the city organization.
The action aligns with each of the five Cross-Cutting Threads as follows:
Community Trust – A comprehensive insurance program strengthens the City’s ability to protect the City’s assets in addition to providing a recourse to allow Riverside to transfer liability risks to insurance companies.
Equity – Insurance is a Risk Management instrument that safeguards assets and provides resources to City staff that allow the City to continue providing consistent and reliable services to all community members.
Fiscal Responsibility – The City’s broker markets the various insurance policies to multiple markets to ensure that the City is purchasing the best coverage at the most competitive price.
Innovation – The City’s insurance portfolio consists of various structures including quota share programs, stand-alone excess policies, and insurance pools all designed to maximize the City’s unique coverage needs.
Sustainability & Resiliency – The insurance renewal process is a data driven process that aims to build an insurance program that will enhance the City’s ability to remain resilient during losses.
FISCAL IMPACT:
The City's insurance broker continues to negotiate with various insurance carriers and will not receive the final premium amounts until July 1, 2023. The amount of $6,995,108.28 is expected to be the maximum cost to the City. As such, City staff is seeking authority with a 20% contingency for an amount that does not exceed $8,394,129.93 to finalize the insurance policy renewals. Following the finalization of rates, staff will request a supplemental appropriation where City funds or departments are unable to absorb any significant cost increase beyond their approved FY 2023/24 appropriation limits.
Prepared by: Kristie Thomas, Assistant Chief Financial Officer Certified as to
availability of funds: Edward Enriquez, Interim Assistant City Manager/ Chief Financial Officer/City Treasurer
Approved by: Edward Enriquez, Interim Assistant City Manager/ Chief Financial Officer/City Treasurer
Approved as to form: Phaedra A. Norton, City Attorney
2023-2024 Annual Insurance Renewal ● Page 6