2008-26817 ResoRESOLUTION NO. 2008-26817
A RESOLUTION OF THE MAYOR AND CITY
COMMISSION OF THE CITY OF MIAMI BEACH,
FLORIDA, APPROVING THE PURCHASE OF FLOOD
INSURANCE, ALL RISK PROPERTY INSURANCE
(INCLUDING WINDSTORM ), AND BOILER/MACHINERY
INSURANCE FOR CITY BUILDINGS AND CONTENTS
(INCLUDING NEW CONSTRUCTION), FOR AONE-YEAR
PERIOD, AS PROPOSED BY ARTHUR J. GALLAGHER &
CO., THE CITY'S BROKER OF RECORD.
WHEREAS, as proposed by Arthur J. Gallagher and Co., the City's broker of
record, the Administration has recommended the purchase of Flood Insurance with the
National Flood Insurance Program; All Risk property Insurance (including Windstorm)
with Lexington Insurance Company as the primary layer and Boiler/Machinery Insurance
with Travelers Property Casualty Company of America; and
WHEREAS, funding is available from the Self Insurance Fund Number
540.1792.000378; and
WHEREAS, the City Commission authorizes the Administration to purchase the
aforestated insurances, as proposed by Arthur J Gallagher and Co., if within budgeted
funds; and
WHEREAS, the City Commission also authorizes the Administration, to purchase
additional Windstorm coverage, if available with the remaining budgeted funds.
NOW, THEREFORE, BE IT DULY RESOLVED BY THE MAYOR AND CITY
COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, that the Mayor and City
Commission hereby approve the purchase of Flood Insurance, All Risk Property
Insurance (including Windstorm), and Boiler/Machinery Insurance for all City-owned
buildings and contents (including new construction), for cone-year period, as proposed
by Arthur J. Gallagher & Co., the City's broker of record.
PASSED AND ADOPTED this 14th day of May, 2008.
yor Ma ti H rrera Bower
ATTE T:
City C erk Robert Parcher
APPROVED AS TO
FORM & LANGUAGE
8~ FOR EXECUTION
QO
V'"
COMMISSION ITEM SUMMARY
Condensed Title:
Resolution authorizing the purchase of Flood, All Risk Property (including windstorm) and Boiler Machinery
Insurance as proposed by Arthur J. Gallagher and Co., the City's Broker of Record.
Key Intended Outcome Supported:
Improve the City's overall financial health and maintain overall bond rating
Supporting Data (Surveys, Environmental Scan, etc.): N/A
Issue:
Property Insurance is necessary to protect the financial interest of the City. To qualify for FEMA aid, the
City is required to purchase maximum reasonable insurance avaiiable.
item summaryiKecommenaation:
The current policies renew on June 1, 2008 through May 31, 2009. Lexington Insurance Company has
offered the All Risk Coverage with Windstorm with better coverage at a lower premium ($100,536.00 less
than the current premium). The Flood Insurance and Boiler/Machinery should renew at or near the current
premium.
The Administration recommends that Gallagher be directed to negotiate with the carriers for the best
possible coverage at the best possible premium and that the Mayor and City Commission authorize the
Adminstration to purchase additional Windstorm insurance if available and prudent, up to the current
budgeted amount of $1.9 million.
Adviso Board Recommendation:
Not Applicable
Financial Information:
Source of Amount Account
Funds: ~ N/A 540.1792.000378 Property Insurance (Self-Insurance
Fund
2
3
OBPI Total
Financial Impact Summary:
Ci Clerk's Office Le islative Trackin
Ramiro Inguanzo
Sign-Offs:
~ Department Direct( )) Assistant City Manager ~ City Manager ~
T:\AGENDA\2008\apri11408\Regu lar\P-INS08sum.doc
~~ ~ I ~ ~~ ~ A~~Npa ~~~ R~ ~
'~' DATE s~~~^~O
m MIAN1iBEACH
City of Miami Beach, 1700 Convention Center Drive, Miami Beach, Florida 33139, www.miamibeachfl.gov
COMMISSION MEMORANDUM
TO: Mayor Matti Herrera Bower and Members of the City Commission
FROM: Jorge M. Gonzalez, City Manager
DATE: May 14, 2008
SUBJECT: A RESOLUTION OF THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI
BEACH, FLORIDA, APPROVING THE PURCHASE OF FLOOD INSURANCE, ALL
RISK PROPERTY INSURANCE (INCLUDING WINDSTORM) AND
BOILER/MACHINERY INSURANCE FOR CITY BUILDINGS AND CONTENTS
(INCLUDING NEW CONSTRUCTION), FOR AONE-YEAR PERIOD AS PROPOSED
BY ARTHUR J. GALLAGHER & CO., THE CITY'S BROKER OF RECORD.
ADMINISTRATION RECOMMENDATION:
Adopt the resolution.
FUNDING:
Funding for this task has been previously appropriated in FY 2006-2007 Risk
Management Claims Fund No. 540-1792-000378.
ANALYSIS:
The City's property insurance needs are covered by three policies: Flood, All Risk
(including windstorm) and Boiler/Machinery (equipment breakdown). The current policies
renew from June 1, 2008 through May 31, 2009. Lexington insurance Company has
offered the renewal of the All Risk Coverage with Windstorm with an additional
$10,000,000 Windstorm sub-limit which increases the total Windstorm coverage from
$10,000,000 to $20,000,000 at a lower premium ($100,536.00 less than the current
premium). The Flood Insurance and Boiler/Machinery should renew at or nearthe current
premium. The City relies on FEMA to provide financial assistance for expenses and
damages related to flood and/or windstorm that are not covered by insurance.
The City obtained insurance value appraisals in 2007-2008 for all buildings requiring
insurance (68 locations). The appraisals were designed to meet insurance carrier
underwriting requirements. The Total Insured Value (TIV) for all locations is
$653,942,644.00.
The City utilizes the services of Arthur J. Gallagher and Co. (Broker of Record), to secure
property insurance. Annually, prior to policy expiration, the City directs Gallagher to
contact all available markets for property insurance quotes. We have attached the
estimated renewal figures from Gallagher.
City Commission Memorandum
May 14, 2008
Purchase of Property Insurance
Page 2 of 3
The first coverage, Flood, is only offered through the National Flood Insurance Program.
The coverage limits are $500,000 for buildings and $500,000 for building contents with a
$5,000 deductible per location. The City purchases a separate Flood policy for each
location within the City. The individual policies renew from June 2008 through December
2008. The annual premium for 2007-2008 is $291,260.00. The premium for 2008-2009 is
estimated to be $305,823.00 (while we have not been informed of any increases, we have
included a 5% increase). To qualify for aid from FEMA for loss due to flood, the Act
requires that the City purchase available insurance.
The second coverage, All Risk, can be purchased with or without Windstorm coverage.
With regard to FEMA's eligibility requirements for Windstorm, the City is required to
purchase coverage that is reasonably available. The premium cost for All Risk including
Windstorm for 2007-2008 was $1,529,541.00. The policy included Windstorm sub-limits
of $10,000,000 (additional limits were not available due to limited insurance capacity in
Florida). This policy was offered by Lexington Insurance Company. Lexington Insurance
Companywas the only carrierwilling to provide primary coverage forAll Riskthat included
a Windstorm sub-limit.
Lexington has indicated that they will offer a renewal of this policy for 2008-2009.
(Lexington is the only carrier offering primary coverage with a Windstorm sub-limit). The
renewal for the current policy (All Risk with a $10,000,000 Windstorm sub-limit) is being
offered for a total premium of $1,111,008.00. This renewal represents a decrease in
premium of 28.08% ($433,836.00). Additionally, Lexington has offered to increase the
Windstorm sub-limit from the current level $10,000,000 up to $20,000,000 (see attached
renewal estimate) for an additional premium of $333,300. The total renewal premium of
$1,444,308.00 forAll Risk with a $20,000,000 Windstorm sub-limit is 6.51 % ($100,536.00)
lower than the current/expiring premium. The All Risk renewal includes an option to
purchase Terrorism coverage. This coverage is very limited and does not respond to all
types of terrorism. In the past the Cityhas not elected to purchase this coverage.
The third coverage, Boiler/Machinery provides coverage for property built to operate under
a vacuum or pressure, or used for generations, transmission or utilization of energy (water
pumps, A.C. units, generators). The City purchases this insurance due to the many
locations that house this type of machinery/equipment. Damage sustained by
machinery/equipment for breakdown is not currently reimbursable under any type of State
or Federal program. The premium for 2007-2008 was $20,200.00 with coverage provided
by Travelers. We anticipate the renewal premium for 2008-2009 to be $20,402.00 due to
a 1 % increase in Total Insured Values.
CONCLUSION
With regard to the purchase of All Risk (including a Named Windstorm Sub-limit), the
Administration recommends the City purchase the primary coverage offered by Lexington
Insurance Company and utilize the remaining funds authorized by the Mayor and City
Commission to negotiate and purchase additional Windstorm insurance through all
possible markets (including Lexington and Citizens Property and Casualty). The purchase
of additional Windstorm limits will help minimize the City's dependence on FEMA, provide
additional funds for damage repair, and speed recovery in the event of damage sustained
from a major storm.
City Commission Memorandum
May 14, 2008
Purchase of Property Insurance
Page 3 of 3
Arthur J. Gallagher has looked at insuring City locations separately in lieu of purchasing
blanket coverage (All Risk with Windstorm). Citizens Property and Casualty is the only
other insurance market available at this time and is limited to windstorm coverage only.
Arthur J. Gallagher and Co. does not recommend that the City pursue coverage from
Citizens Property Insurance Corp. for the following reasons:
• Citizens is the option of last resort, and should not be utilized if a voluntary carrier is
offering coverage. Lexington is offering higher windstorm capacity this year for less
premium than they charged fast year.
• Citizens is not well capitalized and may not be able to respond to all claims in a timely
manner.
• Citizens only offers a $1 million loss limit. Therefore, buildings valued in excess of $1
million will not be properly covered. Furthermore, the premium for this limited coverage
is based on the total values at risk. By way of example, this means that fora $10
million building, you would pay a premium as if you had $10 million of coverage, but
would only receive $1 million of coverage in return.
• Citizens will not provide coverage for time element losses such as loss of rents or extra
expense.
The Administration recommends that Gallagher be directed to negotiate with the carriers
for the best possible coverage at the best possible premium and that the Mayor and City
Commission authorize the Administration to purchase additional Windstorm insurance if
available and prudent, up to the current budgeted amount of $1.9 million.
T:WGENDA\2008\apri11708\Regular\P-I NS08.doc
~. Gallagher Public Entity & Scholastic Division
Arthur l Gallagher Ritik ~VSanagement Servia~c
April 28, 2008
Mr. Clifton Leonard
City of Miami Beach
1700 Convention Center Drive
Miami Beach, FL 33139
Re: 2008 - 2009 Estimated Renewal Premiums
Dear Cliff,
The Property Insurance program for the City of Miami Beach renews on June 1,
2008, and you have asked us to provide an estimate of what we believe the
renewal premiums will be for Property, Bailer & Machinery, and Flood insurance.
Accordingly, please note the fallowing:
As to Master Property Insurance:
We are pleased to inform you that we have been able to secure a significant rate
reduction of 28.63% from the incumbent insurer, Lexington Insurance Company,
for the renewal of the current program. Lexington is further offering increased
limits of named windstorm coverage for less than the City is curren#ly paying.
Since Lexington is the only carrier offering primary coverage to the City, the
program has not been marketed to any other carriers.
Option
~ I - $10,000,000 Named Windstorm Loss Li mit as ex irin
2007-2008 2008-2009 est.
TIV $648,991,550 $653,942,644
T1V Chan e 0.76%
Rate 0.2357 0.1682
-Rate Chan a -28.63%
Premium $1,529,541 $1,100,000
FL CAT Fund
Assessment
$15,295
$11,000
EMPA $$ $g
Total $1,544,844 $1,111,008
Premium Chan a -28.08%
Arthur J. Gallagher & Co (Fonda)
8200 Northwest 41 st Street. Suite 200
Miami, FL 331 66
Main 305.592.6080
Fax 305.5924049
www.aj~.coiYi
G Gallagher Public Entity ~ Scholastic Division
Arthur J. C;allagher Risk h4anaKement Services
Option II - $15,000,000 Named Windstorm Loss Limit
2008-2009 est.
Rate 0.1942
Rate Chan a from ex irin -17.60%
Premium $1,270,000
FL CAT Fund Assessment $12,700
EMPA $8
Total $1,282,708
Premium Chan a from Ex irin -16.97%
Option III - $20,000,000 Named Windstorm Loss Limit
2008-2009 est.
Rate 0.2187
Rate Chan a from ex irin -7.22%
Premium $1,430,000
FL CAT Fund Assessment $14,300
EMPA $g
Total $1,444,308
Premium Chan a from Ex irin -6.51
Note: The "All Other Peril" Loss Limit applicable to the above options is $200
million.
You will note that the 1 % Florida Hurricane Catastrophe Fund surcharge remains
in effect this year. This surcharge is intended to augment the reserves of the
Florida CAT Fund which were significantly depleted after the busy 2004 and
2005 storm seasons. Public Entities are not exempt from this assessment.
As to Flood Insurance:
White we have not been informed of any increases in National Flood Insurance
Program (NFIP) rates, we would not discount the possibility of an incremental
increase of up to 5%, which we see the administrators of NFIP implement
periodically. Since the City is currently paying $291,260 for its NFIP policies that
Arthur J. Gallayher& Co. {Florida)
8200 Northwest 4 1st Street, Swte 200
Miami. FL 33166
Main 305.592.6080
Fax 305.592.4049
www.ajg.com
Gallagher Public Entity ~ Scholastic Division
Arthur I. Gallagher Risk r\9anagemrnt Services
renew throughout the year, a possible 5% rate increase would result in the City's
total NFIP premiums increasing to up to $305,823, or $14,563.
As to Boiler 8~ Machinery:
We expect the City's Boiler & Machinery premium to remain flat. Since your Total
Insured Values are about 1 % higher this year than last year, that would translate
into your premium increasing from $20,200 to $20,402, or an additional $202.
As to Citizens Property Insurance Corp.:
We do not recommend you pursue coverage from Citizens Property Insurance
Corp. far a number of reasons. Among these are:
• Citizens is the option of last resort, and should not be utilized if a voluntary
carrier is offering coverage. Lexington is offering higher windstorm capacity
this year for less premium than they charged last year.
• Citizens is not well capitalized and may not be able to respond to all claims in
a timely manner.
• Citizens only offers a $1 million loss limit. Therefore, buildings valued in
excess of $1 million will not be properly covered. Furthermore, the premium
for this limited coverage is based on the total values at risk. By way of
example, this means that fora $10 million building, you would pay a premium
as if you had $10 million of coverage, but would only receive $1 million of
coverage in return.
• Citizens will not provide coverage for time element losses such as loss of
income {e.g. theater or golf course}, rents, or extra expense.
The above are only premium estimates based on the information we have at this
time. We will continue working with the markets to obtain the most favorable
terms possible for the City of Miami Beach, and we expect to have the program
completed by mid-May. In the meantime, please feel free to call me if you have
any questions; I appreciate the opportunity to work with you.
Sincerely,
-.,
Craig S. F ~ stein, CPCU, ARM, ASLI, Are
Area Assis nt Vice President
Arthur J. Gallagher & Cu (Flonda)
8?_00 Northwest 41st Street, Surte 200
Miarm, FL 331 66
Main 305.592.6080
fax 305.592.4049
www a~g com