City of Sacramento
City Council - 5PM Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2023-00590 6/27/2023 Consent Item 17.
Contracts: Authorizing City’s Insurance Broker to Renew the City’s contracts for insurance as needed (Two-Thirds Vote Required)
File ID: 2023-00590
Location: Citywide
Recommendation: 1) Pass a Motion waiving the requirement for 10-day posting of agreements over $1 million, required by City Code section 4.04.020(c) and City Council Rules of Procedure Section 7(E)(2)(d) (2/3 vote required); and 2) Pass a Motion authorizing the City Manager or City Manager's designee to authorize Alliant Insurance Services, Inc., the City's insurance broker, to secure insurance policies for Excess Liability, Excess Workers' Compensation, Property, Fine Arts, Aircraft, and other insurance including Crime, Pollution, Underground Storage Tank, Special Events, and Airport Liability, for an amount not-to-exceed $19,395,328, including $600,000 for unexpected increases in costs.
Contact: Patrick Flaherty, Risk Manager, (916) 808-8587, [email protected], Human Resources Department
Presenter: None
Attachments:
1-Description/Analysis
2-Attachment A Fiscal Year 2024 Insurance Premiums
3-Attachment B Schedule of Insurance
Additional Description/Analysis
Issue Detail: The City faces a complex array of risks that can result in severe or catastrophic loss.
The City utilizes professional insurance brokerage services to place a variety of commercial insurance policies to protect the City from these losses. The City currently contracts with Alliant Insurance Services Inc. (Alliant) to perform this function. Purchasing insurance helps protect the City from catastrophic liability claims, automobile accidents, and workers’ compensation injuries.
Additionally, purchasing insurance protects the City from loss due to damage or destruction of City
File ID: 2023-00590 6/27/2023 Consent Item 17.
assets, pollution, crime, fine arts, cyber liability, special events, and airport/aircraft exposures. The City’s insurance broker marketed all lines of insurance coverage to ensure all viable options were considered. The City’s insurance broker and the Department of Human Resources, Risk Management Division have evaluated each of the insurance programs in terms of potential loss, coverage, self-insured retentions, deductibles, premiums, and policy limits and recommend the purchase of insurance as outlined in Attachment A. Attachment B provides a comparison of insurance policies for FY2022/23 and FY2023/24.
In FY2022/23, Alliant placed insurance policies for the City with a total cost of $14,175,133 and in FY2023/24 the estimated total cost of insurance is $19,395,328, a 37% increase. The increase is primarily driven by higher excess liability and property insurance costs, which are discussed below.
Similar to last year, this has been a very difficult insurance renewal process with costs increasing in many lines of coverage for the City and public entities throughout California and the nation. These recommendations for insurance policies, premiums, self- insured retentions, and deductibles may change as most quotes are not finalized and in some instances the City may receive additional insurance quotes that would change the costs and information outlined in this report.
Policy Considerations: Failure to purchase insurance policies to protect the City in case of catastrophic losses would place the City at risk for financial hardship should one or more of these losses occur.
The Sacramento City Code Section 4.04.020 and Council Rules of Procedure (Chapter 7, Section E.2.d) mandate that unless waived by a 2/3 vote of the City Council, all labor agreements, and all agreements greater than $1,000,000 shall be made available to the public at least ten (10) days prior to council action. Staff is requesting the waiver of the ten-day requirement to ensure the broker’s ability to place the policies of insurance before the current policies expire.
Economic Impacts: None.
Environmental Considerations: This report concerns administrative activities that will not have a significant effect on the environment and does not constitute a “project” as defined by CEQA [CEQA guidelines Sections 15061(b)(3); 15378(b)(2)].
Sustainability: There are no sustainability considerations applicable to this action.
Commission/Committee Action: Not applicable.
Rationale for Recommendation: The recommended insurance policies are as follows:
Excess Liability: The excess liability insurance renewal was extremely challenging again this year for
File ID: 2023-00590 6/27/2023 Consent Item 17.
the City and public entities throughout California and the nation. Costs continue to rise as the state of the liability insurance market for public entities continues to harden as plaintiff settlement demands, jury verdicts, and high dollar liability claims continue to rise dramatically. This results in more and larger claims which drives increasing premiums. Unfortunately, these increases do not appear to be an anomaly but rather are the new normal. For example, the annual growth rate for claim costs for the last decade has been at 11% per year. Additionally, claim payouts by the City’s excess liability carriers lead to increasing premiums and there are now fewer reinsurers willing to write public entity business, reducing the available capacity in the insurance market. The City participates in the General Liability 2 program in Public Risk Innovations, Solutions, and Management (PRISM), a member directed insurance risk sharing pool, for excess liability coverage. Policy limits were increased to $40 million in FY2022/23 due to rising settlement and verdict values and remain at $40 million this year. This amount of excess liability coverage is appropriate for a city the size of Sacramento and will provide additional protection from catastrophic losses. The City’s self-insured retention is $2 million with a $2 million loss corridor deductible. The loss corridor deductible is an aggregate deductible for claims over the City’s $2,000,000 self-insured retention. The City, and other General Liability 2 program members received large premium increases in FY2023/24. Our FY2022/23 premium was $8,715,721 and our FY2023/24 premium is 38% higher, estimated at $12 million.
Excess Workers’ Compensation: The City is self-insured for the first $2 million of any workers’ compensation loss and has purchased excess workers’ compensation insurance from PRISM since 2007. PRISM uses pool purchasing power to achieve broad coverage for the lowest rates available.
The PRISM pool is one of the largest pools in the nation and provides services to 93% of the counties and 60% of the cities in California. Excess workers’ compensation insurance premiums were $1,402,953 in FY2022/23 and increased 15% to an estimated amount of $1,614,247 in FY2023/24.
The premium increase is primarily driven by estimated higher City payroll, greater claim experience in the higher layers of the pool’s reinsurance, and a premium surcharge due to one large City workers’ compensation claim.
Property: Property insurance is currently purchased from the Public Entity Property Insurance Program (PEPIP) with a $100,000 deductible. PEPIP was formed in 1993 to meet the property insurance needs faced by public entities and is currently the largest property insurance placement in the world. PEPIP is a joint purchase program and there is no risk of assessments. Because of PEPIP’s large size, members receive low premiums with the best possible coverage terms.
FY2022/23 premiums were $3,773,692 and estimated premiums increased 44% in FY2023/24 to $5,440,790. The property insurance market is changing quickly with the hardest market in a generation. Hurricane Ian, which struck Florida in September of 2022, is now the second largest catastrophic property loss ever. Large storm losses in California this winter, which caused extensive damage to City property as well as many other entities in California, are adding to the rapid increases in premiums.
Inflation, labor shortages, and rising material costs have also increased construction costs. These
File ID: 2023-00590 6/27/2023 Consent Item 17.
factors along with an increase in the City’s insurable value and several large property claims (two fires and windstorm claims in FY2021 and FY2023) reported to our property insurer are resulting in a large premium increase.
Fine Arts: Fine arts insurance with a limit of $150 million was purchased last year to provide coverage for the Crocker Art Museum, Discovery Museum, Golden 1 Center, the Sacramento Archives and Museum Collection, and other locations throughout the City. Fine arts insurance was purchased from Axis last year and they remain the insurer this year. The FY2022/23 premium was $96,806. As the Crocker Art Museum continues to acquire artwork, some at a high value, it is recommended we increase the policy limit from the current $150,000,000 to $175 million for FY2023/24. The increased premium costs for this additional coverage are only $14,432 and the estimated FY2023/24 premium is $116,078, an increase of 20%.
Aircraft: Aircraft insurance is purchased to cover the City’s small plane and three helicopters. The premium in FY2022/23 was $52,735 and the premium FY2023/24 is the same.
Other Insurance: Other insurance includes policies for pollution, underground storage tanks, crime, airport, and special events, with a total cost of $171,478; a 29% increase from the prior year’s cost of $133,226. The increase is primarily from higher pollution insurance costs as pollution claims increase in frequency and severity nationwide and there are few insurers interested in writing this coverage.
Total Insurance Costs: Attachment A provides a summary of the FY2023/24 insurance policies and premiums. Attachment B provides a comparison of insurance policies and premiums from FY2022/23 and FY2023/24.
Financial Considerations: The estimated cost of insurance in FY2023/24 is $19,395,328, which is 37% higher than in FY2022/23, primarily due to the increases in excess liability and property insurance premiums. The increase in excess liability premiums is driven largely by the hardening liability insurance market driven by more frequent high value claims and recent payouts by the City’s excess liability carriers. The increase in property insurance premiums is driven by significant catastrophic losses in recent years in the property market related to hurricanes, wildfires, and the recent storms in California. Additionally, the City has reported numerous property claims to the property insurer in recent years for fire losses and windstorms, including the windstorm in January of this year. Sufficient funds will be available in the Department of Human Resources FY2023/24 operating budget for the Risk Management Fund (6502) and Workers’ Compensation Fund (6504), for coverages through June 30, 2024.
Local Business Enterprise (LBE): Alliant is a qualified LBE.
Attachment A
Fiscal Year 2024 Insurance Premiums
Schedule of Insurance
Self-Insured
Retention Policy Limits Premium Carrier
Excess Liability 2,000,000* 40,000,000 12,000,000 PRISM Workers' Compensation 2,000,000 Statutory 1,614,247 PRISM Property 100,000 1,000,000,000 5,440,790 PEPIP
Fine Arts 10,000 175,000,000 116,078 AXIS
Aircraft Varies 20,000,000 52,735
Starr
Indemnity
Other Insurance:
Includes pollution, crime, ust,
airport, special events 171,478
Total Insurance: 19,395,328
*2,000,000 loss corridor deductible
Attachment B
Schedule of Insurance
Comparison
Chart
Fiscal
Year
Self-
Insured
Retention
Policy Limits
Premium
Carrier
FY24
2,000,000*
40,000,000 12,000,000
PRISM
Excess Liability FY23 2,000,000* 40,000,000 8,715,721
Difference: 3,284,279
38%
Workers'
Compensation
FY24
FY23
Difference:
2,000,000
2,000,000
Statutory
Statutory
1,614,247
1,402,953
15%
PRISM
211,294
FY24
100,000
1,000,000,000
5,440,790
PEPIP
Property FY23 100,000 1,000,000,000 3,773,692
Difference: 1,667,098
44%
FY24
10,000
175,000,000 116,078
AXIS
Fine Arts FY23 10000 150,000,000 96,806
Difference: 19,272
20%
FY24
Varies
20,000,000 52,735
Starr
Indemnity
Aircraft FY23 Varies 20,000,000 52,735
Difference: 0 0%
Other
Insurance: FY24 171,478
Includes pollution,
crime, ust, airport,
special events FY23 133,226
Difference: 38,252
29%
FY24
19,395,328
Total
Insurance FY23 14,175,133
Difference: 5,220,195 37%
*2,000,000 loss corridor deductible
Attachment B
Schedule of Insurance
Comparison
Chart
Fiscal
Year
Self-
Insured
Retention Policy Limits Premium Carrier
FY24 2,000,000* 40,000,000 12,000,000 PRISM
Excess Liability FY23 2,000,000* 40,000,000 8,715,721
Difference: 3,284,279 38%
Workers'
Compensation
FY24
FY23
Difference:
2,000,000
2,000,000
Statutory
Statutory
1,614,247
1, 402,953
15%
PRISM
211,294
FY24 100,000 1,000,000,000 5,440,790 PEPIP
Property FY23 100,000 1,000,000,000 3, 773,692
Difference: 1,667,098 44%
FY24 10,000 175,000,000 116,078 AXIS
Fine Arts FY23 10000 150,000,000 96, 806
Difference: 19,272 20%
FY24 Varies 20,000,000 52,735 Starr
Indemnity
Aircraft FY23 Varies 20,000,000 52,735
Difference: 0 0%
Other
Insurance: FY24 171,478
Includes pollution,
crime, ust, airport,
special events FY23 133,226
Difference: 38,252 29%
FY24 19,395,328
Total
Insurance FY23 14,175,133
Difference: 5,220,195 37%
*2,000,000 loss corridor deductible