LTC 315-2017 Property Insurance Renewal 2017_2018OM MIAMI BEACH
OFFICE OF THE CITY MANAGER
NO. LTC#
LETTER TO COMMISSION
315-2017
TO: Mayor Philip Levine and Members of the CitAommission
FROM: Jimmy L. Morales, City Manage
DATE: June 5, 2017
SUBJECT: Property Insurance Renewal 2017x2018
Since Miami Beach is a barrier island in South Florida with no inland spread of risk, it
creates a challenge for insurers who need to manage their aggregates in a wind -prone
area and the City who needs to procure property coverage in the event of a catastrophic
loss. However, according to the City's broker of record, Arthur J. Gallagher ("AJG"), the
property insurance market has remained stable over the past several years, which is
favorable for the City's property renewal. There are multiple factors which had been
driving the soft property insurance market. The rate decreases have been a result of
limited natural catastrophe losses, increased sources of capital contributions and an
increased amount of competition in the marketplace. As such, AJG was able to
approach numerous carriers in an effort to provide the most comprehensive and cost
effective insurance program to the City.
Overal the past several years, the City has been updating its property insurance
program to better reflect our risk, as well as to comply with previous State of Florida
suggestions for preserving our eligibility for Federal Emergency Management Agency
("FEMA") relief under the Stafford Act, in the event of a catastrophic hurricane. In June
of 2015, FEMA issued a revised guideline for public assistance which has significantly
changed the process for obtaining waivers for facilities that have insurance obligations.
The new process requires that FEMA issue any waivers of insurance commitments, but
requires a certification from the Insurance Commissioner's office that the insurance
coverage obtained is "reasonable". The City has traditionally requested from the Florida
Division of Emergency Management (DEM), on an annual basis, a determination of the
reasonableness of the City's property insurance program. This was done to preserve
the City's ability to obtain funding from FEMA in the event of a hurricane that is declared
to be a federal disaster. The State of Florida has not issued a "reasonableness"
determination for the City of Miami Beach or any other public entity since their review of
insurance for the 2014 hurricane season. However, the City will continue to submit its
insurance program to the State with a request to review for "reasonableness".
Like most property insurance brokers in Florida, AJG uses the RMS (a trademark of Risk
Management Solutions) modeling that represents one of the current best practices in
Letter to Commission
Property Insurance Renewal 2017-18
Page 2
prediction of windstorm losses and is vital to appropriate pricing of property insurance in
Florida. As indicated on the Probable Maximum Loss ("PML") chart below, in the event
of a 250 year storm, RMS projects the City's PML for properties covered under the City's
property insurance program to be approximately $145 million ground up. The projected
gross loss (loss excess of the City's deductible) is approximately $124 million. (Note, this
does not include the Convention Center.)
ritical
hoh.
0.10%
Return
Period
1,000
RNIS
Ground t 1)
$289,692,124
2016
Gross Loss
$259,350,260
I
$269,712,098
I -
$240,735,054
0.20%
500
$215,396,015
$189,655,482
$202,399,015
$177,585,506
0.40%
250
$152,918,674
$131,574,048
$145,033,585
$124,449,248
1.00%
100
$89,183,264
$74,024,788
$85,667,628
$70,527,479
2.00%
50
$53,085,488
$40,877,639
$51,694,513
$39,712,795
5.00%
20
$18,380,240
$9,396,981
$18,708,913
$9,897,908
AAL
$3,975,527
$2,837,835
$3,892,374
$2,742,960
The City's property insurance needs are covered by the following five (5) policies: (1)
National Flood Insurance Program ("NFIP), (2) All Risk (including windstorm), (3)
Builder's Risk for Convention Center, (4) Boiler/Machinery (equipment breakdown), and
(5) Fine Arts (Bass Museum and Art in Public Places). Most of the policies will renew on
June 1, 2017. The Total Insured Value (TIV) for all buildings/structures, throughout the
City is $594,808,843, with an additional estimated $41,000,000.00 for Fine Arts (Bass
Museum and Art in Public Places). The City has received a very favorable renewal, with
an option to expand our insurance program, while staying within budget. (See
illustration below.)
Property
$1,775,000
$1,658,000
$1,923,000
Boiler & Machinery
$12,345
$11,907
$11,907
Fine Arts
$38,447
$37,906
$37,906
Terrorism
n/a
n/a
$18,500
Active Shooter
n/a
n/a
$10,000
EMPA Surchar a 1
$12
$12
$24
Total
Pr ram Costs
$1,825,804
$1,707,825
_--- -
$2,001,337
Letter to Commission
Property Insurance Renewal 2017-18
Page 3
Flood Insurance
Flood coverage is excluded under the City's Property Insurance Program. The City
maintains individual flood insurance policies through the NFIP on most of its eligible
properties. The Federal Emergency Management Agency ("FEMA") will not provide
assistance for a flood loss in the Special Flood Hazard Areas that could have been
covered under the NFIP. The maximum policy limits are $500,000 for buildings and
$500,000 for contents, subject to a $10,000, $25,000 or $50,000 deductible. The
estimated annual budget for flood insurance is $343,000; this is an estimated 10%
increase over last year's premium.
All Risk Property Insurance
The second policy, All Risk, is purchased with Windstorm coverage. In order to comply
with FEMA's eligibility requirements for Public Assistance, the City is strives to purchase
Windstorm coverage that is reasonably available in the current insurance market. The
premium cost for All Risk including Windstorm for 2016-17 was $1,775,000. The policy
included Named Windstorm sub -limits of $25 million.
Obtaining relief from FEMA and/or the State could be a lengthy multi-year process. In
the event a named tropical storm or huuricane causing severe damage to City property,
we will need an immediate infusion of funds to recover and begin the rebuilding process
as quickly as possible. Therefore, it is the Risk Management strategy to take advantage
of this "soft market" by incrementally increasing the windstorm limit and reducing the
deductible, based on availability and within budget. (The two illustrations below show the
shift in windstorm limits and deductibles over the past ten years.)
Named Windstorm limits Purchased
from 2005 - 2017
($$ million)
50
10 20 10 10 10 10 10 15 20 25 3030
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
15.0%
10.0%
5.0%
0.0%
Named Windstorm Percentage
Deductible
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Letter to Commission
Property Insurance Renewal 2017-18
Page 4
In addition to the actual amount of insurance coverage the City should carry, the prudent
recommendation is that the City continue with its efforts to improve citywide
infrastructure, in conjunction with the City's Sustainability & Resilliency strategies
pertaining to sea level rise and flooding.
As such, the property insurance renewal for June 1, 2017, was upgraded (as shown in
Option II below) to include an increase of $5 million named windstorm coverage, a
reduction in the windstorm deductible to 6.5% and the purchase of a terrorism policy,
with an active shooter endorsement.
Terrorism Coverage
Currently, property damage resulting from a terrorist act is excluded from the All Risk
property policies. Traditionally, property carriers offer Terrorism Risk Insurance Act
("TRIA") coverage with each renewal, which is limited (the President of the United States
must declare an active "terrorism" for coverage to be triggered). To address a potential
threat posed by those who wish to harm critical City infrastructure, we intend to
strengthen our property program by implementing various strategic economic recovery
options that are available to us. This year there is a recommendation to purchase a
standalone terrorism policy, which is less expensive than TRIA, and provides broader
coverage (does not require a Presidential declaration to trigger coverage). The
Terrorism coverage includes an act or series of acts, involving the use of force or
violence, of any person or group of persons, whether acting alone or on behalf of or in
connection with any organization, committed for political, religious, ideological or similar
purposes, including the intention to influence any government and/or to put the public or
any section of the public, in fear.
AJG approached several markets for the terrorism coverage and found Ironshore to be
the most competitive, offering a $100 Million limit with a $10,000 deductible. In addition,
Ironshore offers an add-on "Active Shooter" coverage which would indemnify the City for
business interruption and extra expenses incurred should you experience an Active
Shooter event. Extra expenses covered under this policy can include, but not restricted
to public relations consultancy costs, relocation expenses, counselling and/or psychiatric
care costs, medical expenses, alternate employee recruitment costs, and temporary
security costs. For the purpose of this Insurance, an Active Shooter Event means an
individual or group of people actively engaged in killing or attempting to kill people in a
confined and/or populated area at an insured location detailed on the Schedule of
Values held by underwriters. The premium for the standalone Terrorism policy is
$28,500.
Letter to Commission
Property Insurance Renewal 2017-18
Page 5
Option I
$25MM Named Windstorm
Lexington
Starr
$112.5MM Part of $150MM
$37.5MM Part
All Other Perils
of $150MM
Excluding Flood/Storm Surge
All Other Perils
Excluding
Flood/Storm
Surge
Westchester
$5MM XS $20MM Named windstorm Only
Lexington
Starr
$15MM Part of $20MM
$5MM Part of
Named Windstorm Sublimit
$20MM
Named windstorm Sublimit
Named
Windstorm
Sublimit
Deductibles
Named Windstorm:
7.5% of TIVs at each location involved in loss
$1 MM minimum any one occurrence
All Other Perils:
$100,000 Per Occurrence
Option II
$30MM Named Windstorm
6.5% Named Windstorm Deductible
Lexington
Starr
$112.5MM Part of$150MM
$37.5MM Part
All Other Perils
of $150MM
Excluding Flood/Storm Surge
All Other Perils
Excluding
Flood/Storm
Surge
Liberty
$5MM XS $25MM Named windstorm Only
Westchester
$51VIM XS $20MM Named Windstorm Only
Lexington
Starr
$15MM Part of $20MM
$51VIM Part of
Named windstorm Sublimit
$20MM
Named
Windstorm
Sublimit
Deductibles
Named windstorm:
6.5% of TIVs at each location involved in loss
$1 MM minimum any one occurrence
All Other Perils:
$100,000 Per Occurrence
Builder's Risk (Convention Center Project)
During the June 2015-16 policy period, the City moved the Miami Beach Convention
Center ("MBCC") off of the citywide All Risk property insurance program to a Builder's
Risk policy while major renovations are underway (December 2015 — August 2018). The
MBCC is the City's largest single structure, valued at approximately $445 million before
the renovations, and expected to value $700 million after renovations. AJG will be
providing the City with recommendations on how we insure this property in 2018, at the
completion of renovations.
Letter to Commission
Property Insurance Renewal 2017-18
Page 6
Boiler and Machinery (IBM
Travelers provide B&M coverage for physical damage to or financial loss from
equipment breakdown. The policy limit is $250 million, with a $10,000 deductible.
Travelers quoted a 3% premium decrease for the 2017 renewal. The quoted premium is
$11,907.
Fine Arts
This policy provides coverage for art that is displayed in various locations throughout the
City with an insurable value of $29,008,941, and a $5,000 deductible for each and every
loss, but increased to $25,000 each and every loss in respect to Windstorm. (The policy
contains amended deductibles for certain pieces of art/locations). Underwriters at
Lloyd's continue to offer a very favorable program. This year, four pieces were added to
the schedule, two at the Bass Museum and two at Collins Park. The renewal premium is
$37,906.
TULIP Program
The TULIP (Tenant Users Liability Insurance Policy) Program provides low cost general
liability insurance to "third party" users of City facilities, i.e. Parks, Theaters, and the
Convention Center. The TULIP coverage protects both the facility user and the City
against claims by individuals who may be injured as a result of attending an
event. While access to the TULIP Program is offered through the City, premiums are
paid directly to the company by the facility users requesting coverage and there is no
cost to the City.
All coverages were bound as stated above for the June 1, 2017 renewal, at a combined
premium of $1,874,621. As the City continues it's mitigation efforts and investments, we
will work with AJG on ways to market our program to property carriers that ultimately
results in a reduction in risk. Additionally, we plan to explore other insurance tools, such
as catastrophe bonds that may be an effective and efficient alternative/compliment to
insurance.
JLM/MT/MS
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