LTC 351-2018 Property Insurnce Renewal 2018-2019el_ MIAMIBEACH
OFFICE OF 351-2018
NO. LTC#
LETTER TO COMMISSIuN
TO: Mayor Dan Gelber and Members • the City ommission
FROM: Jimmy L. Morales, City Manager
DATE: June 22, 2018
SUBJECT: Property Insurance Renewal 20 8-2019
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. According to the City's broker of record, Arthur J. Gallagher ("AJG"), we have
enjoyed a soft pricing environment over the past several years. With capital continuing to
increase, carrier competition and demand for growth kept rates down in the core property
and casualty lines. Through the first half of 2017, however, the industry posted a
combined ratio of 100.7; the first time the industry posted a loss ratio over 100 since
2012. Additionally, net income dropped 29% in the first half of this year. Today, the
industry sits in a worse position. Harvey, Irma and Maria insured losses are estimated to
exceed $130 billion which would wipe out over 15% of the industry's surplus.
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
projecting probability of windstorm losses and is vital to carriers in obtaining 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
$134 million ground up. The projected gross loss (loss excess of the City's deductible)
is approximately $116 million. (Note, this does not include the Convention Center.)
Critical
Prob.
0.10%
Return
Period
0.20%
0.40%
1,000
500
250
RMS 2017
Ground Up
1.00%
100
2.00%
50
5.00%
20
AAL
$252,785,646
$187,855,500
$133,578,462
$78,170,785
$46,099,017
$14,959,783
$3,369,187
Gross Loss
$227,347,778
$165,999,524
$116,150,901
$65,234,689
$35,778,933
$7,590,760
$2,464,883
Letter to Commission
Property Insurance Renewal 2018-19
Page 2
In the past several years, the City has updated its property insurance program to better
reflect our risk. The City's property insurance needs are covered by the following six (6)
policies: (1) National Flood Insurance Program ("NFIP), (2) All Risk (including
windstorm), (3) Builder's Risk for Convention Center, (4) Boiler/Machinery (equipment
breakdown), (5) Fine Arts (Bass Museum and Art in Public Places) and (6) Terrorism
(including Active Shooter Coverage). Most of the policies renewed on June 1, 2018.
The Total Insured Value (TIV) for all buildings/structures, throughout the City is
$594,912,956, with an additional estimated $29,699,478 for Fine Arts (Bass Museum
and Art in Public Places). Despite the challenging market conditions, the City has
received a competitive renewal within budget. (See illustration below.)
Coverage
Property
2017-2018
Expiring
$1,923,000
2018-2019
Renewal
Boiler & Machinery
Fine Arts
Terrorism & Active Shooter Coverage
EMPA Surcharge
Total Program Costs
$11,907
$37,906
$28,500
$24
$2,105,000
$11,902
$2,001,337
$38,609
$28,500
$32
$2,184,043
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 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. The estimated annual budget for
flood insurance is $356,720; this is an estimated 4% increase over last year's premium.
Boiler and Machinery (B&M)
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 flat renewal. The quoted premium is $11,902.
Fine Arts
This policy provides coverage for art that is displayed in various locations throughout the
City with an insurable value of $29,699,478 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. The underwriter offered a flat renewal
rate with a renewal premium is $38,906.
Letter to Commission
Property Insurance Renewal 2018-19
Page 3
All Risk Property Insurance
The All Risk is purchased with Windstorm coverage. In order to comply with FEMA's
eligibility requirements for Public Assistance, the City strives to purchase Windstorm
coverage that is reasonably available in the current insurance market. The premium
cost for All Risk including Windstorm for 2018-19 is $2,105,000. The policy includes a
Named Windstorm sublimit of $30 million.
(The two illustrations below show the shift in windstorm limits and deductibles over the past
eleven years.)
$40
$30
$20
$10
$0
Named Windstorm Limits
(In $Millions)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
15.0%
Named Windstorm % Deductibles
10.0%
10.0%
$30
$30
$20
5.0
5.0%
5.0%
5.0%
5.0%
7.5%
7.5%
7.5/
—
7.5%
--
$15
$20
6.5%
$25
0.0%1
$10
$10
$10
$10
$10
$10
2008
1
2009
1
2010
2011
2012
I
2013
2014
1
2015
2016
I
2017
2018
1
I
1
i
1
1
1
1
1
I
■
I
1
1
1
1
1
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
15.0%
Named Windstorm % Deductibles
10.0%
10.0%
5.0
5.0%
5.0%
5.0%
5.0%
7.5%
7.5%
7.5/
—
7.5%
--
7.5%
6.5%
6.5%
0.0%1
2007
2008
1
2009
1
2010
2011
2012
I
2013
2014
1
2015
2016
I
2017
2018
I
In addition to the actual amount of insurance coverage the City should carry, the prudent
recommendation is that the City continues with its efforts to improve citywide
infrastructure, in conjunction with the City's Sustainability & Resiliency strategies
pertaining to sea level rise and flooding.
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 2018-19
Page 4
2018-2019 Program Structure
$30MM Named Windstorm
6.5% Named Windstorm Deductible
Lexington
$97.5MM Part of $150MM
All Other Perils
Excluding Flood/Storm Surge
Everest
$15MM Part
of $150MM
All Other
Perils
Excluding
Flood/Storm
Surge
AmRisc
$15MM Part
of $150MM
All Other
Perils
Excluding
Flood/Storm
Surge
Starr
$22.5MM Part of
$150MM
All Other Perils
Excluding
Flood/Storm Surge
Ironshore
$5MM XS $25MM Named Windstorm Only
Westchester
$5MM XS $20MM Named Windstorm Only
Lexington
$13MM Part of $20MM
Named Windstorm Sublimit
Everest
$2MM Part of
$20MM
Named
Windstorm
Sublimit
AmRisc
$2MM Part
of $20MM
Named
Windstorm
Sublimit
Starr
$3MM Part of
$20MM Named
Windstorm
Sublimit
Deductibles
Named Windstorm:
6.5% of TIVs at each location involved in loss
$1MM minimum any one occurrence
All Other Perils:
$100,000 Per Occurrence
Not drawn to scale
Letter to Commission
Property Insurance Renewal 2018-19
Page 5
Terrorism Coverage
Last year the City purchased a standalone terrorism policy, which is Tess expensive than
TRIA (Terrorism Risk Insurance Act Coverage), 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.
In addition, the carrier, Ironshore, offers an add-on "Active Shooter" coverage which
indemnifies the City for business interruption and extra expenses incurred should the
City experience an Active Shooter event. Extra expenses covered under this policy can
include, but is 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 renewal premium for the
standalone Terrorism policy remains flat at $28,500.
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, 2018 renewal, at a combined
premium of $2,184,043. As the City continues its mitigation efforts and investments, we
will work with AJG on ways to market our program to property carriers that ultimately
result in a reduction in risk. In addition, we are working with AJG to explore other Risk
Financing Vehicles including Wind Speed/Flood Based Parametric Triggered Products,
Tidal Based Products, and Resort Tax Revenue Stabilization Products that may be an
effective and efficient compliment to the City's insurance.
JLM/MT/MS