CONSENT CALENDAR
City of San Bernardino
Request for Council Action
Date: June 5, 2024
To: Honorable Mayor and City Council Members
From: Rochelle Clayton, Acting City Manager;
Andrea E. Russell, Director of Human Resources & Risk
Management
Department: Human Resources & Risk Management
Subject: Annual Renewal of the City’s Risk
Management Insurance Policies for FY 2024/25 (All
Wards)
Recommendation:
It is recommended that the Mayor and City Council of the City of San Bernardino, California:
1. Approve the annual renewal of the City’s excess general liability insurance, excess workers’ compensation insurance, crime insurance and cyber insurance; and
2. Authorize the City Manager or designee to execute all related documentation.
Executive Summary
The City purchases insurance policies through Public Risk Innovation, Solutions, and Management (PRISM), a member-directed risk sharing pool of public agencies committed to providing risk coverage programs and risk management services, which drive member stability, efficiency, and best practices. Staff is recommending renewing insurance coverage for the specific policies noted below. •Excess Workers’ Compensation Program
•General Liability 2 Program (GL2)
•Master Crime Program
•Cyber Liability Program
Background
The City is one of the 70% of California cities that have pooled membership within PRISM. Members within a pooled insurance plan typically experience lower rate increases year-over-year as opposed to standalone coverage. PRISM seeks quotes from both domestic and international markets in order to fill the program insurance needs. When the final quote is selected, PRISM works with actuaries and underwriters to determine the premium allocation for each member based on their individual loss experience and exposure data.
The continued general liability hard market will again have negative impacts on the City in 2024, and into the foreseeable future. The new normal of increased numbers of very large general liability claims, continues to drive the cost of risk even higher and is having a dramatic impact on the insurance market. The factors that continue to fuel the increased claims costs are many and interrelated, but they all result in more and larger claims, or frequency of severity. This is a wide-spread issue that particularly impacts public entities, and PRISM members have contributed their fair share of large losses.
The increase in the number and size of extremely large losses over the last decade are the main contributor. Starting around 2013-2014, large liability claims activity increased significantly. Extremely large verdicts and the resulting increased settlement values have had devastating impacts on the economics of liability claims. Claims that previously had resolved in the $5M-$10M range started costing public entities and their insurers $20M-$30M and higher. This increased frequency of severity turned out to be an industry-wide trend. The trend has continued and even worsened in recent years.
An October 2023 Swiss Re Institute report notes that US liability costs have risen by an annual average of 16% over the last five years (2018-2022).
Carriers who, in retrospect, had been pricing the exposure below these new loss costs have been forced to take drastic action to protect their bottom line. These actions have included:
•Withdrawing from the market altogether
•Reducing capacity (amount of limit carriers are willing to put at risk) •Pushing for aggregate limits
•Restricting coverage through exclusionary language, and •Dramatically increasing rates
While PRISM’s premiums will increase for 2024/25, the premiums are still less costly than an entity would likely be faced with outside of PRISM. A testament to the continued competitiveness of the Program are the new members that join PRISM each year at considerable price savings compared to their other stand-alone or JPA options.
In addition to premium savings, the City enjoys broader coverage and avoid coverage restrictions and limitations that are often quoted outside of PRISM.
The Excess Workers’ Compensation (EWC) market has its own set of problematic issues to hurdle, some similar to excess liability and others unique to the workers’ compensation (WC) system. While EWC is currently the more stable line of coverage, the aging workforce, medical inflation, presumptions such as cancer, heart and post- traumatic stress, and the pandemic have disrupted the WC environment.
While accident frequency in workers’ compensation has been steady to slightly downward for several years due to loss prevention methods, claim severity continues to trend upwards. This is especially true for catastrophic injury cases where the costs are rising dramatically and predicting future costs continues to be challenging.
PRISM’s EWC Program size is an advantage. The size of the EWC Program creates stability and offers economies of scale that could not be realized without being in a large pool. Because of this, we have been able to secure unique reinsurance agreements largely due to the Program’s premium volume.
Discussion
Excess Workers’ Compensation Program
The City purchases excess workers' compensation insurance to cover employees if they are injured on the job. Coverage includes reimbursement for payments above the City’s self-insured retention (SIR). This includes compensation for temporary disability benefits at statutory rates, medical benefits, and some allocated expenses.
The City’s current excess workers’ compensation coverage cost is $553,696 and has a $1 million self-insured retention (SIR) with a limit remaining at statutory coverage.
Statutory coverage provides payment for claims up to the amount required by law, without limits. The FY 2024/25 premium coverage is estimated not to exceed $714,000.
Program premium projections assume increases of 5% - 20%. The City is experiencing a 16% premium increase when comparing last fiscal year’s not to exceed amount of $602,000 to this year’s not to exceed amount.
Excess General Liability Program
The City purchases excess general liability insurance to protect against catastrophic incidents such as: bodily injury, property damage, personal injury, public officials’ errors and omissions liability, automobile liability and employment practices liability.
The City’s current excess general liability insurance coverage cost is $1,857,247 and has a $5 million self-insured retention (“SIR”) with a limit of $25 million. The FY 2024/25 premium for coverage is estimated not to exceed $2,415,000. Program premium projections assume increases of up to 40%. The City is experiencing a 10% premium increase when comparing last fiscal year’s not to exceed amount of $2,177,000 to this year’s not to exceed amount.
Master Crime Program
The City purchases master crime insurance to protect against illegal acts committed by employees while on the job including theft, forgery, inside premises (theft of money and securities/robbery), computer fraud, money orders and counterfeit paper currency, and outside premises.
The City’s current master crime coverage cost is $13,827 and has a $2,500 self- insured retention (“SIR”) with a limit of $15 million. The FY 2024/25 premium for coverage is estimated not to exceed $15,900. Program premium projections assume increases of 10% - 15%. The City is experiencing a 3% premium decrease when comparing last fiscal year’s not to exceed amount of $15,500 to this year’s not to exceed amount.
Cyber Liability Program
The City purchases cyber liability insurance for reimbursement coverage in response to information security and privacy liability, website media content liability, cyber extortion and first party data protection.
The City’s current policy cost is $30,496 and has a $100,000 SIR with a limit of $12 million. The FY 2024/25 premium for coverage is estimated not to exceed $45,700.
Program premium projections assume increases of 20% - 85%. The City is experiencing an 8% premium decrease when comparing last fiscal year’s not to exceed amount of $49,400 to this year’s not to exceed amount.
The following chart summarizes the City’s current actual cost for insurance coverage to the maximum renewal estimates, assuming no changes to coverage, deductibles and or retention. It is important to underscore that the actual premium paid year over year do not typically reach the maximum estimated cost, therefore, it is highly likely that the City will not experience the maximum percentage change.
Insurance Type FY 2023/24 Actual
Premium
FY 2024/25
Maximum
Estimated Cost
Maximum
Percentage
Change
Excess Workers’
Compensation
$553,696 $714,000 23%
Excess General
Liability
$1,857,247 $2,415,000 23%
Master Crime $13,827 $15,900 13%
Cyber Liability $30,496 $45,700 33%
2021-2025 Strategic Targets and Goals
Approving the renewal of the City’s various insurance policies aligns with Strategic Target No. 1: Improved Operational and Financial Capacity, specifically, Goal e:
minimize risk and litigation exposure by maintaining sufficient coverage to provide protection to the City.
Fiscal Impact
The financial impact to the City would not exceed $4,585,900. There is sufficient funding included in the FY 2024/25 Operating Budget.
Conclusion
It is recommended that the Mayor and City Council of the City of San Bernardino, California:
1. Approve the annual renewal of the City’s excess general liability insurance, excess workers’ compensation insurance, crime insurance and cyber insurance; and
2. Authorize the City Manager or designee to execute all related documentation.
Attachments
Attachment 1 - Insurance Renewal PowerPoint
Attachment 2 - 2023/24 Budget Estimates
Ward:
All Wards
Synopsis of Previous Council Actions:
June 7, 2023 The Mayor and City Council approved the annual renewal of the City’s Property insurance, excess general liability insurance, excess workers’ compensation insurance, crime insurance and cyber insurance.
June 15, 2022 The Mayor and City Council approved the annual renewal of the City’s excess workers’ compensation, excess general liability insurance, crime insurance and cyber insurance policies.
March 2, 2022 The Mayor and City Council adopted Resolution No. 2022-42, approving the annual renewal of the City’s property insurance for a premium not to exceed $1,601,000 for the term beginning April 1, 2022 and ending March 31, 2023.