HomeMy WebLinkAbout11/15/2006 - STAFF REPORTS - 2.N. �LPnll P;CM1R,�,i� •
City of Palm Springs
JF4 David H. heady, City Manager
3700 17ahquiu Canyon Way • Palm Springs,California 92262
TEL: (760) 323-8201 • PAX:(760) 323-8207 • Web;w .palmsprings-ca.gov
November 15, 2006
Dear Councilmembers:
RE: New Resolution for Agenda Item 2-N (Flood Earthquake Insurance)
Our insurance broker has been working on getting "up to the minute
insurance rates for our flood and earthquake policy renewal.
As of today, the quoted price is $780,030 for$ 25 million in coverage (this is a
premium increase of$390,330 over the current year's price and represents $2.5
million more in property coverage).
We currently have $301,013 budgeted to pay for this policy. It will require a
$462,281 supplemental appropriation from the Risk Management Fund (which
has sufficient dollars to cover this increase) to bridge the gap. However, we
will charge back this increased amount to the various city funds. For example,
the Waste Water Treatment Fund and the Airport Fund will pay the larger
share of this increase, as those two facilities will have priority in
reconstruction in the event of flood or earthquake.
Attached are two Resolutions for approval tonight: 1) resolution approving the
expenditure to purchase the policy coverage; 2) Resolution appropriating the
additional funds.
Thanks,
David
post nfFire Rix ?74' • P:'irr �n rin vc f nlif- -iia C) )) '77A�
RESOLUTION NO.
OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS,
CALIFORNIA, APPROVING THE CITY'S EXCESS
EARTHQUAKE/FLOOD (DIFFERENCE IN CONDITION) INSURANCE
RENEWALS.
WHEREAS, the City of Palm Springs is located in the vicinity of several known active
and potentially active earthquake faults including the San Andreas, the San Jacinto and
the Elsinore faults; and
WHEREAS, the topography of the City makes it prone to flooding especially during
times of heavy rainfall; and
WHEREAS, each year the City purchases a primary earthquake and flood insurance
policy; and
WHEREAS, the City supplements its primary insurance policy with excess coverage to
properly protect its public facilities from catastrophic loss from earthquake or flood; and
WHEREAS, the City's property schedule is estimated at $335,842,805; and
WHEREAS, this is an increase of$54,467,927 over the prior year; and
WHEREAS, the City Council desires to provide insurance coverage in an amount that
will properly protect public property from earthquake and flood damage.
NOW THEREFORE BE IT RESOLVED by the City Council of the City of Palm Springs,
California approves the following excess insurance coverage renewal:
Earthquake/Flood (Difference in Condition) Premium 11/20/06 through 11/20/07
Excess of$2,500,000 Primary Net of Commission
(Cumulative Total
First Layer Excess of$5 Million $228,990.72
Insurance Company Arch Spec ($228,990.72)
Best's Rating A-XV
Limit of Coverage S7,500,000
Second Layer Excess of$2 5 Million $63,825.00
Insurance Company Westchester Fire ($292,815.81)
Best's Rating A+XI
Limit of Covera e$10,000,000
Third Layer Excess of$5 Million $194,886.23
Insurance Company Lloyds of Landon ($487,702.04)
Best's Rating NA
Limit of Coverage$15.000.000
Fourth Layer Excess of$10 Million $292,328.82
Insurance Company Lloyds of London ($780,030.86)
Best's Rating N/A
Limit of Covera e$25,000,000
ADOPTED this 15th day of November, 2006.
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By
City Clerk City Manager
REVIEWED & APPROVED AS TO FORM
RESOLUTION NO.
A RESOLUTION OF THE PALM SPRINGS COMMUNITY
REDEVELOMENT AGENCY AMENDING THE BUDGET
FOR THE 2006-07 FISCAL YEAR.
WHEREAS Resolution approving the budget for the fiscal year2006-07was adopted
on 20061and
WHEREAS the City Manager/Executive Director has recommended, and the Agency Board
desires to approve, certain amendments to said budget;
NOW THEREFORE BE IT RESOLVED that the Director of Finance is authorized to record
inter-fund cash transfers as required in accordance with this Resolution,and that Resolution
adopting the budget for the 2006-07 fiscal year is hereby amended as follows:
SECTION 1. ADDITIONS
Fund Activity Account Amount
540 Earthquake Insurance 5905-48655 $462,281
Purpose. To provide additional funds for building repairs.
SECTION 2. SOURCE
Fund Active Account Amount
540 Fund Balance 0000-29301 ($462,281)
Adopted this day of , 2006.
AYES:
NOES:
ABSENT:
David H. Ready, City Manager
ATTEST:
James Thompson, City Clerk
,PALM SA
�0 ?r
ti c
IQ
V N
M
ryan onNee
C9`/FOR*, City Council Staff Report
DATE: November 15, 2006 Consent Calendar
SUBJECT: Excess Earthquake/Flood Insurance Coverage -- Renewal
FROM: David H. Ready, City Manager
BY: Assistant City Manager—Administrative Services
SUMMARY
Vn July 2006, the City purchased a primary layer of coverage for earthquake/flood
insurance in the amount of $2.5 Million. In addition to the primary layer of coverage, the
City normally purchases excess coverage also known as Differences in Coverage (DIC)
insurance. Last year, the City Council authorized the purchase of an additional $20 Million
in excess insurance coverage for a total of $22.5 Million in coverage. The excess
insurance coverage is set to expire on November 20�h. The requested action would
authorize staff to acquire an additional $20 Million in excess insurance coverage for a
combined total of$22.5 Million in earthquake and flood insurance protection.
RECOMMENDATION:
1. Adopt Resolution No. _ "A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF PALM SPRINGS, CALIFORNIA APPROVING EXCESS
EARTHQUAKE/FLOOD INSURANCE COVERAGE IN THE AMOUNT OF $20
MILLION AT A COST NOT-TO-EXCEED $618,763. (The City's Insurance Broker
is actively soliciting additional quotes so the actual cost for insurance will likely be
less. A revised resolution will be provided to Council next week).
2. Adopt Resolution No. "A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF PALM SPRINGS, CALIFORNIA AMENDING THE BUDGET FOR THE
2006-07 FISCAL YEAR.
3. Authorize the City Manager to execute all documents necessary.
STAFF ANALYSIS:
Hurricane Katrina, which caused nearly $50 billion in insured losses, was the single
most destructive natural catastrophe in U.S. history. The massive loss in both lives and
property caused by this disaster has led insurers, rating agencies and catastrophe
modeling firms to reconsider all prior assumptions concerning disaster risks. As a
result, insurance premiums have increased by 200% to 300% over the past twelve
months. In addition, the insurance market that writes catastrophic coverage (flood,
rrEM NO. N
City Council Staff Report
November 15, 2006 -- Page 2
Earthquake/Flood Insurance DIC Renewal
wind, and earthquake) has reduced available insurance capacity further increasing
costs.
Recent assessments by catastrophe modeling firms indicate that the destruction that
could be caused by a massive California earthquake is of the same order of magnitude
as the worst hurricane scenarios — a Category 5 storm striking Miami and moving up the
Florida coast, or a Category 5 storm raking the New Jersey coastline before crashing
into New York City. The USGS predicts that there is a 62% probability of at least one
magnitude 6.7 or greater quake, capable of causing widespread damage, striking the
San Francisco Bay region before 2032. While making no specific timeframe
projections, a recent, widely reported study by Yuri Fialko of Scripps Institute of
Oceanography at the University of California, San Diego, indicates that, as a result of
300 years of unrelieved, steadily building tension, a segment of the San Andreas fault
running through Palm Springs and a number of other cities in San Bernardino, Riverside
and Imperial counties "could rupture at any moment," possibly producing a M7+ quake.
One catastrophe modeling company estimates that a rupture along the this segment of
the San Andreas Fault in Southern California could result in as much as $300 billion in
property damage.
The City is self-insured and purchases various lines of insurance each year for
additional protection. Flood and earthquake is almost always excluded from
commercial property policies and must be purchased separately. In July, the City
Council approved the purchase of $2.5 Million in primary earthquake/flood coverage at a
cost of$192,250 as part of the City's annual insurance renewals.
The City has historically purchased Differences in Coverage (DIC) insurance to augment
its primary earthquake/flood insurance policy to insure that there are sufficient funds to
repair or replace City facilities that could be damaged in a natural disaster. The following
schedule is a summary of earthquake/flood insurance purchased over the last ten years
and the City's property schedule valuation for the same period:
Year Property Schedule Insurance Limit Deductible
' 1995 $141,071,896 $20,000,000 10%
1996 $142,521,871 $20,000,000 10%
1997 $144,302,534T $86,803,070 5%
1998 $147,823,510 $86,803,070 5%
1999 $149,650,839 $86,803,070 5%
2000 $152,729,810 $50,000,000 5%
2001 $175,042,804 $50,000,000 5%
2002 $182,071,385 $73,500,000 5%
2003 $195,186,338 $82,500,000 5%
2004 $199,981,459 $32,500,000 5%
2005 $281,374,878 $22,500,000 5%
2006 $335,842,805 N/A
i
City Council Staff Report
November 15, 2006-- Page 3
Earthquake/Flood Insurance DIC Renewal
The losses experienced over the past several years by the insurance industry have
(negatively impacted the marketing of the City's excess coverage. The table below
represents the premium cost for each excess layer of coverage that can be purchased.
' The City Council has the option of purchasing the first layer and any additional layer(s) of
coverage. It should be noted that these insurance proposals do not include terrorism
coverage or premiums for same.
Excess levels of insurance over primarycoverage of$2.5 million
Earthquake/Flood Placement Cumulative Premium for Cumulative
Insurance each Level Cost of
Coverage Insurance
First layer= $5 million $7.5 million $228,990 $228,990
Second layer = $15 million $22.5 million $389,773 $618,763
The City's property schedule has a present net replacement cost of $335 Million. This is
an increase of over$54 Million over last year's valuation. While it is highly unlikely that the
City would have to replace every single facility in the event of an earthquake, there are
several facilities such as the Airport and Wastewater Treatment Plant that are considered
critical to the continued operations of the City. These two facilities alone have an
estimated replacement cost of over $120 Million. In reality the actual cost is probably in
excess of$200 Million if both facilities were totally destroyed.
Normally, the federal government reimburses 75 percent of eligible costs incurred by
local governments and special districts in the event of a catastrophic disaster. The
' remaining 25 percent is generally funded by state and local governments. In addition,
prior to providing federal disaster assistance, the federal government is now reviewing
' whether the local government or special district requesting such federal assistance has
adequate insurance in place or the financial capacity to purchase such insurance.
According to FEMA guidelines (44 CFR Part 206), local government agencies that fail to
maintain proper property insurance can be denied federal disaster assistance.
The current insurance market makes it financially cost prohibitive to purchase insurance
to cover the entire property schedule. However, based on the FEMA policy regarding
disaster assistance funding, staff is recommending that the City Council purchase a
minimum of two layers of excess insurance coverage for a cumulative total of $22.5
million in insurance coverage. This is the same amount of coverage the City purchased
last year. The total cost of this coverage is $618,763, Although this is nearly a 63% or
$228,990 increase over last year insurance costs, staff believes that the City nerds to
maintain the existing level of coverage to protect its interests and toe
sCrate good
faith compliance with federal regulations concerning disaster assista
FISCAL IMPACT: Finance Director Review:
The City budgeted $510,000 for earthquake insurance in the current fiscal year. Of this
amount $192,250 has already been spent to acquire the primary level of earthquake
insurance coverage. This leaves a remaining balance of $317,750 to purchase the
City Council Staff Report
November 15, 2006--Page 4
Earthquake/Flood Insurance DIC Renewal
additional layers of earthquake insurance that will be needed to raise the City's
cumulative insurance coverage to $22.5. If the City Council elects to purchase the
recommended amount of insurance coverage, a budget amendment will be needed to
cover the additional $301,013 in coverage cost. Funding for the additional insurance
coverage is available in the Risk Management Reserve Fund.
Staff plans to allocate the increased premium costs for DIC insurance coverage to each
department as a separate internal services charge based on their proportional share of
the City's total property schedule.
L -2�
y L. Butz l David H. Ready, City er
As istant Cit tn ger
inistrative Services
Attachments:
1. Resolution Approving Excess Earthquake/Flood Insurance Coverage for the
period of November 20, 2006 through November 20, 2007
2. Resolution Amending the Budget for Fiscal Year 2006-07
RESOLUTION NO.
' A RESOLUTION OF THE PALM SPRINGS COMMUNITY
REDEVELOMENT AGENCY AMENDING THE BUDGET
' FOR THE 2006-07 FISCAL YEAR.
WHEREAS Resolution approving the budgetforthe fiscal year2006-07 was adopted
on 2006; and
WHEREAS the City Manager/Executive Director has recommended,and the Agency Board
desires to approve, certain amendments to said budget;
NOW THEREFORE BE IT RESOLVED that the Director of Finance is authorized to record
inter-fund cash transfers as required in accordance with this Resolution,and that Resolution
adopting the budget for the 2006-07 fiscal year is hereby amended as follows:
' SECTION 1. ADDITIONS
Fund Activity Account Amount
540 Earthquake Insurance 5905-48655 $302,000
Purpose. To provide additional funds for building repairs.
SECTION 2. SOURCE
i
Fund Activity Account Amount
540 Fund Balance 0000-29301 ($302,000)
Adopted this day of , 2006.
AYES:
NOES:
ABSENT:
David H. Ready, City Manager
ATTEST:
James Thompson, City Clerk