HomeMy WebLinkAbout1985-02-19; City Council; 7657-2; Renewal of excess liability InsuranceCARLSBAD — AGEND^ILL
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TITLE:
RENEWAL OF EXCESS LIABILITY' INSURANCEi ,
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RECOMMENDED ACTION:
Approve Resolution No. 79 / 7 ' authorizing the purchase of $900,000 excess
liability insurance at an annual premium $66,858 from Planet Insurance Company.
ITEM EXPLANATION , , -• "
The City purchases liability insurance up to a limit of $20,000,000. Currently,
the City self insures the first $50,000 and the first $950,000 coverage over
.this self insured retention is provided by Twin City Fire Insurance Company.
The remaining $19,000,000 excess liability insurance is provided by
International Insurance Company. The Twin City Fire Insurance policy expires on
March 16, 1985. ,--."'
PRESENT COVERAGE
Company
City Self Insurance
Twin Cities
International Insurance
Amount
"of - Coverage
$ 50,0'00 "
950,000
19'million
$20 million
Premium
$30,760
38,330
'$69,090
Term
3/15/84-3/16/85
1/1/85- 1/1/86
Renewal of this Twin Cities policy has been extremely difficult under the ,
current adverse market conditions. Seven carriers were contacted, however, only
two companies submitted quotations.
Company
Planet Insurance
Planet Insurance
xProtective National
Self Insured
Retention
$ 50,000
100,000 .
100,000 ;
Amount of
Coverage
$ 950,000
900,000
500,000
Premium
$106,907
66,858
64,200
The premium savings between the $50,000 and $100,000 self insured retention
level is $40,049., The additional cost to maintain a $50,000 self insured
retention does not appear justified in light of the premium cost, the City's
loss history, effective loss control program and cash flow advantages.
PAGE 2. OF AB #
PROPOSED COVERAGE
Company
City Self Insurance
Planet Insurance
International Insurance
FISCAL IMPACT
Amount
of Coverage
$ 100,000
900,000
19 million
$20 million'
Premium
$ 66,858
38,330
$105,188
Term
3/-16/85-3/16/86
1/1/85-.1/1/86
An uncommitted balance of $603,998 is available in the City's liability self
insurance fund to pay this premium and any losses within the self insured
retention.
EXHIBITS ,
1. Resolution No. 79/7
-2-.; Memorandum from Risk Management Consultant dated February 8, 1985.
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RESOLUTION NO. 7917
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CARLSBAD, CALIFORNIA, AUTHORIZING PURCHASE OF
EXCESS LIABILITY INSURANCE.
WHEREAS, the City's Insurance Broker has received
quotations for excess liability insurance; and
WHEREAS, upon evaluation of the quotations received, the
City desires to renew coverage in the amount of $900,000 excess
over a $100,000 self insured retention.
NOW, THEREFORE, BE IT RESOLVED by the City Council of
Carlsbad, California, as follows:
1. That the above recitations are true and correct.
2. That the City Manager is hereby authorized to execute
a Purchase Order for the purchase of the City's excess liability
insurance with Planet Insurance Company in the amount of $66,858.
PASSED, APPROVED AND ADOPTED at a regular meeting of the
City Council on the 19th day of February ,1985, by the
following vote, to wit:
AYES: Council Members Casler, Lewis, Kulchin, Chick and Pettine
NOES: None
ABSENT: None
MARY H. 0ASLER, Mayor
ATTEST:
ALETHA L. RAUTENKRANZ, City Clterktr
(SEAL)
February 8, 1985 .
TO: . CITY MANAGER
FROM: Risk Management Consultant
EXCESS LIABILITY INSURANCE
MARCH 16, 1985 RENEWAL
Excess liability insurance within the first $1 million of the City's liability
program comes up for renewal on March 16th. Insurance extending protection from
$1 million to $20 million has already been renewed effective January 1, 1985,
and the purchase from International Insurance Company was approved by City
Council at their meeting of December 18, 1984.
The current, renewal is occurring at a time of a dramatic and continuing
deterioration in insurance markets. Many companies have withdrawn entirely from
municipal risks, and others are raising their rates up to 400%. This
deterioration is affecting all commercial risks, but is particularly severe in
the public,sector because of heavy losses and continuing uncertainly over the
escalating effect of the "deep pocket" rule.
PREMIUM HISTORY •;
Since the inception of the self insurance program on Ouly 1, 1981 the following: premiums .have been paid for coverage up to $1 million:
Term Self Insured Retention Premium
7-1-81/82 $100,000 $37,131
7-1-82 to 3-16-83 , 100,000 27,231
3-16-83/84 - 100,000 21,750
3-16-84/85/ , - 50,000 ' 30,760
MARKETING OF RENEWAL .
Renewal quotations have been sought through the City broker, and a quotation was
also requested from the San Diego County Cities Risk Management Authority. The
City broker submitted a full application and specifications to seven insurance
Carriers, the only carriers presently known to be entertaining municipal
liability insurance. These were Planet, Protective National, First State, Twin
City, Saint Paul, Industrial, and Chicago Insurance Company. Five of these,
carriers refused to quote. No additional markets were available to the Risk
Management Authority.
The following three quotations were received: ,. .
Company
Planet (A+:XV admitted)
Planet (A+:XV admitted)
Protective National (A+:XI admitted)
•SELF INSURED RETENTION
Self Insured
Retention
$ 50,000
100,000
100,000
Amount of
Coverage
$ 950,000
900,000
500,000
Premium
$106,907
66,858
64,200
The self insured retention is the amount of each loss plus outside investigative
and defense costs which the City must pay for claims arising out of any one
accident. Costs over the self insured retention are paid by the insurance
carrier. It is clear that Planet Insurance Company has provided the better
quotations, both with respect to financial stability in their rating (A+:XV is
the highest rating afforded any company) and pricing. The choice is therefore
between a $50,000 retention and a $100,000 retention. For the following reasons
I am recommending the $100,000 level: • .
1. There is a difference in premiums of $40,000 between a $100,000 and a
$50,000 SIR. This savings, when compounded by cash flow consideration and
interest, would allow for payment of one catastrophe loss during the policy
year 1985-86. An analysis of past experience shows that during the four
years of the self insurance program, there were only two years when
anticipated losses exceed $50,000.
2. A higher self insured retention gives the City greater control over the
program, and avoids pressure being exerted on smaller claims by the
insurance carrier to settle within our retention.
3. Until last year the City did carry a $100,000 retention, and current funding
of the program is now fully adequate to support this level.
COVERAGE MODIFICATIONS
Although still providing broad general, automobile and errors and ommissions
liability protection, the new program is subject to exclusions which should be
noted:
1. Coverage is excluded for the Lake Calavera Dam.- The City broker is
attempting to obtain a separate quotation for this protection, but
alternative methods of handling this risk should be considered. These
, liabilities are shared with the Water District which is responsible for
maintaining the dam, and coverage could be more easily and economically
obtained under a joint Insurance arrangement with the District. As another
alternative, the risk could be eliminated by draining the lake, or even by
disposing of the property since it forms no functioning part of the water
system. .
2. There is no coverage for claims resulting from a failure to supply water.
This again is a joint liability with the Water District, and could best be
handled under a joint program.
3. As before, coverage for inverse condemnation is limited, although it now
does provide some protection for defense costs.
A-. Previously, protection provided for a stop loss of $250,000. This meant
that if all losses paid in the,policy year exceeded $250,000, regardless of
the number of self insured retentions applicable, the excess carrier would
.take over payment. Stop loss coverage is no longer available, but this is
' not of great concern since the possibility of reaching any level approaching
$250,000 is extremely remote.
SAN DIEGO COUNTY CITIES RISK MANAGEMENT AUTHORITY
Planet Insurance Company is the carrier used by the Authority and the same
quotation could have been obtained through the Authority. The City Council,
however, has already appointed the City broker as our exclusive agent, and
obtaining,the quotation through his firm provided a number of advantages.
T. Full membership in the Authority which would be required to obtain the
quotation involves the payment of substantial membership dues. The
additional services provided by the Authority are not necessarily required
by this City. In addition, full membership is costly in terms of staff
time, since it involves attendance at frequent lengthy meetings.
2. Full participation in the Authority programs could well eliminate the
possibility of exploring alternatives in the future. It is wise for the
City to maintain this option.
3. The City's current;brokerage contract places a ceiling of $10,000 on
commissions payable in any one year. Standard commissions on this renewal
alone would total $8,357 and would be subject to no modification and the
arrangement with the Authority broker.
RECOMMENDATIONS '
It would be my recommendation that the City should accept the quotation provided
by Planet Insurance Company at the $100,000 self insurance retention at an
annual.premium of $66,858.
It would also be my strong recommendation that the City continue to work with
the Costa Real Municipal Water District in an attempt to obtain,a solution to
questions of joint liability. This is of particular concern in view of the
coverage limitations in this renewal, and it should be remembered that any
inadequacies.in their insurance program could result in a direct liability by
the. City. A full analysis of their current program was contained in my report
"of December 18, 1984.
DON 3ACK
D3/ds