2013 2:00:00 PM

Monday, June 24, 2013 2:00 PM
City Council Chambers, Legislative Building, 745 Fourth St, Sparks, NV

General Business: 6.6

Title: Consideration and possible approval to purchase various commercial insurance policies to protect the financial interests of the City for the next policy periods and authorization for the Contracts and Risk Manager to execute agreements for those policies.

Petitioner/Presenter: Dan Marran, CPPO, C.P.M. – Contracts and Risk Manager/Dan Marran, CPPO, C.P.M. – Contracts and Risk Manager

Recommendation: Recommend approval to purchase commercial insurance policies to protect the financial interests of the City of Sparks for the next policy periods.

Financial Impact: 177,529.00

Total Costs: $177,529.00

Fund: Municipal Self-Insurance Account: 603065
Program: Admin/Premium (Non Claim) Transactions in Muni Ins Fund (050515)
Amount: $177,529.00 Budget Status: Over Budget (See Budget Correction Plan)

Budget Correction Plan:
Coming from Fiscal 2014 budget for insurance policy premiums.

Business Impact (Per NRS 237):
A Business Impact Statement is not required because this is not a rule.

Agenda Item Brief: While most primary layers of risk exposure are self-insured, the City purchases commercial insurance policies to protect its financial interests against unpredictable, catastrophic losses. These policies include: Property & Contents (including boiler & machinery), general liability, automobile liability, auto physical damage, employee crime and tenant users liability. This agenda item authorizes the Contracts and Risk Manager to execute the necessary paperwork associated with these those policies.

Background: The City self-funds loss exposures that are predictable, where it is not cost effective to purchase commercial insurance, and where losses do not threaten its financial stability. However, there are potential issues that present significant exposure to the City's financial stability, are somewhat unpredictable, and lend themselves to being commercially insured. The lines of coverage which are commercially insured include: property and contents, general liability, auto liability/physical damage, employee dishonesty, and Tenants User Liability (to protect the city and protect those renting our facilities for specific events). With the assistance of its broker (Wells Fargo Insurance Services, USA), Management Services has marketed these coverages with an eye on value (broadest coverage for the most competitive premium). This staff report includes coverage generally identified as the City’s property coverage and more specifically is identified as the “Property/Boiler” and “Auto Physical Damage” policies

Analysis: Property/boiler coverage rates and availability have significantly changed for the next policy year as most insurers have adjusted their risk models associated with earthquake coverage, resulting in significantly higher premiums to maintain coverage at lower levels than are available in the current policy year. The quoted changes to coverage and rates associated with the lower coverage were significant enough to cause exhaustive research of what options were available in the market to maintain the coverage limits we enjoyed in this area of risk. This issue has impact insurance coverage for all the public agencies in Northern Nevada and the solution to this issue evolved as new solutions were sought. The incumbent carrier did provide quotes for the City coverage. But as an example of the quoted changes to the policy, their quote for continued service to the City was $179,727 which included a reduction of the City’s earthquake coverage from $40M to $10M. The policy under consideration with this item maintains the $40M coverage level. COVERAGE CHANGES The proposed policy under consideration moves this coverage from traditional policies serviced by Affiliated FM and Travelers to a pool program called the Public Entity Property Insurance Program (PEPIP). PEPIP is a property insurance program which has more than 6,000 insureds in 45 states. The program was started in 1993 and includes cities, schools, universities, airports, seaports, states, districts and hospitals. This program is the largest property placement in the world with approximately $320 Billion in insured values. The Program is administered by Alliant Insurance Services, Inc. The program is designed to provide flexibility for each of the separate entities to be able to elect various coverages and various deductibles. The placement of this coverage is provided by a combination of layering and quota sharing with various Domestic, Bermuda, and London insurance companies. The program is divided into towers which includes various other public entities. The City will be in a tower with other entities from other states. The insureds in a given tower share a $1 billion each occurrence limit for the all-risk coverage (i.e. fire). The program provides a broad manuscript form which includes all risk coverage, boiler and machinery coverage and terrorism coverage. Earthquake coverage is included with dedicated limits to the City. Cyber Liability has been included for a nominal charge as a recommended coverage. All buildings over $5,000,000 in replacement value will be appraised once every 5 years with no additional cost to the City. While the coverage limits and deductibles will remain generally the same as in the past few policy years, the deductible amount specific to earthquake does shift to a “percentage of value” of the property in question. More specifically, the deductible will be 2% of the value claimed with a minimum of $100K. The City’s broker worked exhaustively to seek a “best value” solution to the City. The solution recommended in this staff report represents that work and is significantly lower than initially estimated. It is worth noting that the total premium values paid by the City for all insurance policies remains below what the City paid in the 2010 and 2009 fiscal years.

Alternatives: 1. The City Council may approve the item as recommended. 2. The City Council may reject the recommendation of staff. 3. The City Council may choose not to approve the purchase of insurance policies for 2013-2014, but direct the City Manager further.

Recommended Motion: I move to approve purchase of recommended insurance policies for 2013-2014 and authorize the execution of required policy documents as recommended by the Contracts and Risk Manager.

Attached Files:

Ins Cost Grid-Combined Fiscal 2014-FINAL.pdf

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