City Council Agenda Report
Meeting Date: June 20, 2023
From: Scott Williams, Director of Finance
Department: Finance
Submitted by: Javier Valdez, Business and Account Supervisor Subject
Property and Casualty Insurance Placements for Fiscal Year 2023-24 Recommendation
Approve and authorize the City Administrator to execute all related documents for the procurement of necessary annual insurance coverage for Fiscal Year 2023-24, effective July 1, 2023, to June 30, 2024, for a total amount not-to-exceed $4,965,500.
Background
The City retained AON Insurance Services (AON) to evaluate the appropriate insurance coverages and carriers for the upcoming fiscal year. AON worked diligently with staff to identify suitable coverage types, coverage amounts, self-insured retentions (deductibles), and competitive pricing during the annual renewal process. As part of the services provided, AON evaluates the marketplace and solicits quotes from insurance carriers to ensure competitive rates are obtained. Up to 20 insurance carriers were interviewed for certain coverages. Quotes from insurance underwriters from current insurance carriers and potential new carriers were solicited.
The process included providing requested financial and claims information to insurance carriers to help obtain essential coverage at a competitive price and terms. The insurance negotiation and placement process will conclude on or before June 29, 2023. This will allow time to bind the insurance placements before July 1, 2023.
The proposed schedule of coverage and associated estimated premiums for each type of coverage are summarized in the attached FY 2023-24 Insurance Premiums Schedule.
Some of the inflationary factors comparing FY 2022-23 to FY 2023-24 are as follows:
• Property liability coverage – A property appraisal study determined that City assets were undervalued. The increased adjustments are now compatible with current market values, resulting in increased insurance premiums.
• Stand-alone law enforcement liability coverage – Increased premiums due to recent costly law enforcement settlements and high-dollar verdicts in California. • Business interruption (BI) coverage – This coverage applies to Malburg Generating Station.
• Excess liability coverage – The most significant factors driving excess liability coverage costs, specifically in California, are automobile and law enforcement liability verdicts, medical inflation, and capacity. The amount of funds carriers can offer to insure dramatically decreased.
Pursuant to Vernon Municipal Code Section 3.32.110 (A)(8), insurance contracts are exempt from the competitive bidding requirements; however, insurance brokers and agents must be assigned through a competitive selection process. On April 20, 2021, Council approved an agreement with AON to be retained as the City’s insurance broker based on the results of a Request for Proposals for Professional/Casualty Insurance Broker of Record process carried out in February 2021.
Fiscal Impact
The fiscal impact is not-to-exceed $4,965,500. Funds for insurance premiums were included in the upcoming FY 2023-24 General Fund, Finance, Insurance – Property/Crime Account No. 011- 010-130-520035 in the amount of $1,293,140, Electric Fund, Administration, Insurance – Property/Crime Account No. 055-050-580-520035 in the amount of $566,724, and Electric Fund, Malburg Generation Station, Insurance – Property/Crime Account No. 055-050-586-520035 in the amount of $1,662,258, totaling $3,522,122. However, approval of this action would require an additional appropriation of $227,360 in General Fund, Finance, Insurance – Property/Crime Account No. 011-010-130-520035 from General Fund Unassigned Fund Balance, $932,742 in Electric Fund, Malburg Generation Station, Insurance – Property/Crime Account No. 055-050- 586-520035 and $283,276 in Electric Fund, Administration, Insurance – Property/Crime Account No. 055-050-580-520035 from available Electric Fund Balance.
Attachments
1. FY 2023-24 Insurance Premiums Schedule