2012 2:00:00 PM

Monday, June 11, 2012 2:00 PM
745 4th Street, Sparks, NV 89431

General Business: 6.4

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: Shaun D. Carey, City 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: 398,350.00

Total Costs: $398,350.00

Fund: Municipal Self-Insurance Account: 603065
Program: Admin/Premium (Non Claim) Transactions in Muni Ins Fund (050515)
Amount: $398,350.00 Budget Status: Budget Exists

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).

Analysis: The city continues to work to control losses and limit exposure through the Risk Committee and working with departments to identify potential exposures. In marketing the City policies this year, staff was challenged with an insurance market that has increased premium rates from 8-15% on average. In the case of City policies, in areas of coverage that remained unchanged, we were able to negotiate increases that are well below the market average. A spreadsheet detailing those commercial policies is attached. In Summary, premium changes from the previous policy period are as follows: Property/Boiler: Down $122 Auto Physical Damage: Up $25,090 or 63% (Note Coverage Changes Below) Public Entity General Liability: Up $11,542 or 5% Employee Dishonesty: Up $532 or 4% (Note Coverage Changes Below) Tenant User Liability: Flat The total estimated premium depicted on the attached spreadsheet may be adjusted upward or downward, depending on variations in actual exposures throughout the course of the policy year. COVERAGE CHANGES Auto Physical Damage: In reviewing the renewal process for the next policy period, the equipment schedule specific to the City’s vehicle and equipment fleet was re-examined. It was determined that due to a misunderstanding of the level of coverage (assumed market cost of a vehicle v. the total replacement cost), the schedule of values for the City fleet was significantly undervalued in relation to the coverage of the policy. This resulted in an increase of the value of the City fleet of about 100% from over $14 Million to roughly $30 Million. While the rate charged against the value of the fleet was reduced due to the increased total value, the new value results in a premium change. Staff explored ways that this increase might be mitigated or reduced, including possible increases in deductibles, reduction in coverages and variations in the model of coverage but determined that the existing policy/coverage model best suits the City’s daily operations. While the year-to-year premium increase is significant, staff believes the coverage is appropriate and correct. Employee Dishonesty: During the renewal period, staff requested quotes that allowed for increases in coverage in this category as the existing $2 Million limit was seen as too low in the public sector. The quote referenced in this staff report indicates a change to a new carrier for this policy as well as a new insured limit of $3 Million. It should be noted that the City will be able to secure this policy at a premium value of less than what was offered by the incumbent carrier for the previous ($2 Million) level of coverage.

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 2010-2011, but direct the City Manager further.

Recommended Motion: I move to approve purchase of insurance policies for 2012-2013 and authorize the execution of required policy documents as recommended by the Contracts and Risk Manager.

Attached Files:

Ins Cost Grid-City Fiscal 2013.pdf

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