HomeMy WebLinkAbout11/19/2003 - STAFF REPORTS (22) 7S
DATE: November 19, 2003
TO: City Council
FROM: Director of Human Resources
EXCESS EARTHQUAKE/FLOOD INSURANCE RENEWALS
RECOMMENDATION:
It is recommended that the City Council adopt a Resolution approving the City's
Earthquake/Flood Insurance renewals effective November 21, 2003.
SUMMARY:
According to the City's Insurance Broker, the insurance industry is using a new Earth
Quake Modeling System (EQMS) to assess risk. This new model is generating a higher
Probable Magnitude of Loss (PML) in certain areas that are deemed seismically activity.
For example, Zone E, which covers San Bernardino/Riverside Counties, has a much
higher PML rating under the EQMS. This has resulted in significantly higher premiums for
businesses in this area.
BACKGROUND:
Last year, the City Council approved $82,500,000 in earthquake/flood insurance at a cost
of $142,800. Although the third and fourth excess layers remain relatively unchanged
over last year, the first and second excess layers came in much higher than anticipated
because of the new EQMS system. Consequently, the cost for the same level of
coverage that we purchased last year (excess layers one through four) is now
$235,885.00. This represents a 46% increase over last year's premium.
Table 1 shows the premium cost for each excess level of coverage that can be
purchased. The City Council has the option of purchasing the first layer and any
additional layer of coverage.
TABLE 1
Excess Levels of Insurance over prima coverage of $2.5 million
Earthquake/ Flood Cumulative Premium for Cumulative Cost
Placement Insurance each Level of Insurance
Coverage
First layer = $7.5 million $10,000,000 $ 107,100 $ 107,100
Second layer = $40 million $50,000,000 $201,094 $308,194
Third layer = $15 million $65,000,000 $ 18,563 $326,757
Fourth layer = $15 million $80,000,000 $ 18,563 $345,320
CWA
Historically, the City has purchased lower levels of coverage. The following is a summary
of earthquake/flood insurance purchased over the last ten years:
Year Property Value Insurance Deductible
Schedule Limit
1994 $137,130,461 $20,000,000 100%
1995 $141,071,896 $20,000,000 10%
1996 $142,521,871 $20,000,000 10%
1997 $144,302,534 $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 50%
2002 $182,071,385 $73,500,000 5%
2003 $195,186,338 $82,500,000 50%
2004 $199,981,459 $80,000,000 5%
Although staff would normally recommend that the City purchase the maximum amount of
coverage, in light of the City's budget deficit the Council may wish to consider a lower
level of coverage. This is a budgeted expense. There are sufficient funds available in the
Earthquake Insurance (5905-48655) account to cover the cost even at the highest level of
coverage.
SUSAN E. MILLS, PHR--�
Director of Human Resources
APPROVED:
City Manager
Attachment: Resolution
Marketing Report
C;�014 ;2-
Marketing Report
Excess Earthquake/Flood (DIC) coverage for the
City of Palm Springs - 2003
Insurance carriers
1. Great American Assurance: First layer, excess of$2.5 million for $107,100.00
2. Pacific Insurance Company: Second layer, $10 million excess over $10 million
coverage for $92,812.00
3. London: Second layer, excess of$10 million for $201,093.75
4. Westchester Surplus: Third layer, excess of$50 million for $18,562.50
5. Essex: Fourth layer, excess of$65 million for $18,562.50
6. Clarendon: Indicated $2.5 million excess over $10 million coverage for $50,000
7. Redland Insurance Company: Quoted $5 million excess over $40 million
coverage for $30,000
8. St. Paul: Could not compete on pricing - high excess
9. ERC: Generated high Probable Magnitude of Loss (PML). Quote pending
10.Insurance Company of the West: Quoted $10 million excess over $50 million
coverage for $37,000
11.Axis: Quote pending
12.Arch: Indicated $2.5 million excess over $10 million coverage for $50,000
13.Royal: $5 million to offer— could not compete on pricing
14.Mt. Hawley: Quoted $5 million excess over $10 million coverage for $37,500
15.Western Re: Indicated $5 million excess over $15 million coverage for
approximately $75,000 to $80,000
16.AXA Re: Not quoting for new business
17.General Star: Declined due to class
18.United States Fire: Quote pending
19.Zurich: Decline due to pricing needed
20.North Shore Mgt: Must be excess of $80 million
21.James River: Interested in $30 million excess over $50 million coverage. Could
only offer $5 million
;ah 3
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's Excess Earthquake/Flood (Difference in Condition) Insurance
coverage expired at midnight on November 20, 2003; and
WHEREAS the City of Palm Springs contracted with Davis and Graeber Insurance
Services, Inc., a California Corporation, on October 3, 2001, to perform services
as the City's Insurance Broker of Record to solicit insurance proposals from
qualified carriers upon renewal of these policies, and
WHEREAS the City of Palm Springs received insurance quotations on these
renewals on October 30, 2003.
NOW THEREFORE BE IT RESOLVED by the City Council of the City of Palm
Springs, approve the following insurance coverage renewals:
Earthquake/Flood(Difference in Condition) Premium 11/21/03 through 11/20/04
Excess of$2,500,000 Primary Net of Commission
First Layer Excess of$2 5 Million $107,100.00
Insurance Company Great American Assurance
Best's Rating A XII
Limit of Coverage $7,500,000
Second Layer Excess of$10 Million $201,093.75
Insurance Company Lloyds of London
Best's Rating
Limit of Coverage $40,000,000
Third Layer Excess of$50 Million $ 18,562.50
Insurance Company Westchester Fire Insurance
Best's Rating A IX
Limit of Coverage $ 15,000,000
Fourth Layer Excess of$65 Million $ 18,562.50
Insurance Company Essex Insurance Company
Best's Rating A XIII
Limit of Coverage $ 15,000,000
TOTAL $ 345,318.75
ADOPTED this 19th day of November, 2003.
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By 6City Clerk City Manager �D
REVIEWED & APPROVED AS TO FORM