HomeMy WebLinkAbout08.c. Renew insurance-excess liability and property coverageCentral Contra Costa Sanitary District 8. C.
' BOARD OF DIRECTORS
POSITION PAPER
Board Meeting Date: June 19, 2014
Subject. AUTHORIZE THE GENERAL MANAGER TO RENEW EXCESS LIABILITY
AND PROPERTY INSURANCE POLICIES FOR FISCAL YEAR 2014 -15
Submitted By.
Shari Deutsch, Safety & Risk
Management Administrator
Initiating Dept /Div.:
Administration, Safety and Risk
Management
REVIEWED AND RECOMMENDED FOR BOARD ACTION:
D. Heath — Director of Administration „i,4. 1.-
Roger S. alley
General Manager
ISSUE: The District purchases commercial excess insurance to cover general and auto
liability losses above its $1,000,000 self- insured retention. The District also purchases
liability insurance policies to cover losses from pollution legal liability, employment
practices, and claims for breach of fiduciary duties in administering employee benefit
funds and a property insurance policy to protect against loss to District assets. Current
insurance policies expire on June 30, 2014.
Since the cost of the excess liability and property policies exceeds the General
Manager's spending authority, renewal of these policies must be approved by the
Board.
RECOMMENDATION: Review and approve renewal pricing and coverage options and
authorize the General Manager to bind the following coverage:
Policy Type Carrier Retention Limit Premium Change
First Excess Liability
ICSOP (AIG)
$1,000,000
$15,000,000 0
Second Excess Liability
Lexington
$15,000,000
$25,000,000 NEW
Property
PEPIP
$250,000
Replacement Cost TBD
FINANCIAL IMPACTS: The impact of renewing the first excess liability policy is the
insurance premium of $233,875, the same amount as the current coverage. This year
staff has also secured a quote for additional $10 million in excess liability limits. If
purchased, there would be an additional premium of $103,000. As discussed in more
detail below, renewal pricing for the property coverage is not yet available.
ALTERNATIVES /CONSIDERATIONS: The alternatives to renewing the excess liability
policy are to purchase coverage from other insurance companies that provided quotes
or to adjust the District's self- insured retention.
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Position Paper 1415.doc Page 1 of 3
POSITION PAPER
Board Meeting Date: .June 19, 2014
Subject: AUTHORIZE THE GENERAL MANAGER TO RENEW EXCESS LIABILITY
AND PROPERTY INSURANCE POLICIES FOR FISCAL YEAR 2014 -15
Alternative markets were approached for this coverage. However, none of the other
carriers approached for excess liability quotes were willing to remove their exclusions
for inverse condemnation. As a result, there are no other quotes to review.
BACKGROUND: The District's favorable loss history has continued through fiscal year
2013 -14. The liability sector of the insurance market has performed reasonably well
this last year although insurance companies no longer receive the level of investment
income to which they became accustomed prior to the financial crisis in 2008. As a
result, staff anticipated moderate rate increases in all lines of liability coverage.
However, our renewal quote for the excess liability program is the same price as the
current (2014 -15) premium.
The following table shows the current expiring and renewal premiums for this coverage
compared to last year's expiring and renewal premiums.
Year
Form
Retention /Limit
Expiring
Renewal
$$
%
Premium
Premium
Change
Change
2013 -14
Occurrence
$1 mil / $15 mil
$217,648
$233,875
$16,227
+7
2014 -15
Occurrence
$1 mil / $15 mil
$233,875
$233,875
0
0
Staff recommends renewing the District's excess liability coverage at the above pricing
and retention with AIG.
Second Excess Liability Insurance: For a number of years the District has purchased
excess liability limits of $15 million to augment the self- insured retention of $1,000,000
per occurrence. Given the size of the District's most severe exposures, a $15 million
insurance limit is not ideal. Since the excess liability insurance market appears
relatively stable staff requested quotes for higher limits of coverage this year. Lexington
has offered $10 million in coverage above the $15 million provided by AIG for an
additional premium of $103,000.
Staff recommended to the Finance Committee purchasing a second layer of excess
liability coverage from Lexington to bring the District's total excess liability limits to $25
million. As indicated below, the Finance Committee recommended against purchasing
the second excess liability insurance as it felt the current level of coverage was
sufficient.
Other Insurance - Property: The District purchases property insurance through the
California Sanitation Risk Management Authority ( CSRMA). CSRMA offers the
coverage through a group purchase program of over 1,300 participating public entities
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Position Paper 1415 (2).doc Page 2 of 3
POSITION PAPER
Board Meeting Date: June 19, 2014
Subject: AUTHORIZE THE GENERAL MANAGER TO RENEW EXCESS LIABILITY
AND PROPERTY INSURANCE POLICIES FOR FISCAL YEAR 2014 -15
and between 35 and 40 different insurance and reinsurance companies in any given
year. Since Alliant has not yet received renewal quotes from all participating insurers,
renewal pricing is not yet available. Most US property insurers are increasing rates to
offset catastrophic loss costs (hurricanes, floods etc.). With this in mind, staff has
budgeted for a 15% increase in the property insurance premium. The current property
insurance premium is $133,000. At this time, staff recommends renewing the property
coverage through CSRMA's Public Entity Property Insurance Program ( PEPIP) group
program with a rate increase not to exceed 15% or a maximum of $150,000.
Other Insurance — Workers' Compensation: The District is a member of CSRMA's
Workers' Compensation insurance pool. Renewal pricing for this coverage depends on
the cost of the pool's excess insurance and individual members' experience
modification factors. In 2009 -10 the District's experience modifier rose to .97 to reflect
increases in both the frequency and severity of the District's Workers' Compensation
claims over the preceding two years. Over time, the District's experience modifier has
gone down. For the 2014 -15 renewal, the District's experience modifier is .61.
The Workers' Compensation Insurance Rating Bureau projects that insured losses and
allocated loss adjustment expenses for accident year 2013 will hit an 11 -year high,
ultimately costing $12.5 billion. For this reason, Alliant Insurance Services is
anticipating a 10% increase in the excess Workers' Compensation premium for 2014-
15. As a result, staff anticipates Workers' Compensation premium increases of around
5% over the expiring premium of $414,468.
Renewal rates and any applicable dividends from prior years must be approved by the
CSRMA Board of Directors before members receive final renewal premiums. As in the
past, staff will report the final Workers' Compensation premium to the Finance
Committee as soon as it becomes available.
COMMITTEE RECOMMENDATION: The Finance Committee reviewed this item at the
June 9, 2014 meeting and recommended authorizing the General Manager to renew
insurance coverage for excess liability with AIG for $233,875 and to renew property
coverage with the PEPIP program at rates not to exceed a 15% increase or $150,000.
The Committee recommended against purchasing the additional $10 million excess
liability coverage.
RECOMMENDED BOARD ACTION: As recommended by the Finance Committee,
authorize the General Manager only to renew insurance coverage for excess liability
with AIG for $233,875, and to renew property coverage with the PEPIP program at
rates not to exceed a 15% increase or $150,000.
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Position Paper 1415 (2).doc Page 3 of 3