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2009-27077 ResoRESOLUTION NO. 2009-27077 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), AND FINE ARTS INSURANCE (BASS MUSEUM), AS PROPOSED BY ARTHUR J. GALLAGHER RISK MANGEMENT SERVICES, INC., THE CITY'S BROKER OF RECORD. WHEREAS, as proposed by Arthur J. Gallagher Risk Management Services, inc., 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 Zurich-America and Fine Arts Insurance with Lloyds of London; and WHEREAS, funding is available from the FY 2008-09 Risk Management Claims Account Numbers 540.1792.000378 and 540.1792.000390 ($1,816,000 for All Risk/Wind and Flood, $53,000 for the Fine Arts) and FY 2009-10 Proposed Budget Risk Management Claims Account No. 540.1792.000378 for Flood ($81,000); 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 authorizes the Administration, to renew the proposed policies for up to four (4) additional one year terms, provided the premium amounts do not exceed 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), and Fine Arts Insurance (Bass Museum), as proposed by Arthur J. Gallagher & Co., the City's broker of record. PASSED AND ADOPTED this 13th day of May, 2009. a or Matti er era Bower ATTEST: APPROVED ~ TO ~ FORM $ LANGUAGE ~ FO EXECUTION City Clerk Robert Parcher ,/~ /~ 7 COMMISSION ITEM SUMMARY CnndPnsed Title Resolution approving the purchase of Flood, All Risk Property (including windstorm) and Boiler Machinery for City buildings and contents (including new construction) and Fine Arts Insurance (Bass Museum and Art in Public Places) as proposed by Arthur J. Gallagher Risk Management Services, Inc., the City's Broker of Record. Ke Intended Outcome 5u ortea: • Improve the City's overall financial health and maintain overall bond rating • Increase communit ratin s of cultural activities Supporting Data (Surveys, Environmental Scan, etc.): • Art located at the Bass Museum and Art in Public Places, off site storage and throughout the City is valued in excess of $41,000,000. • Data obtained from the Environmental Scan indicates that attendance at the Bass Museum increased from 19,000 in 2002 to 25,210 in 2007. This represents an increase in attendance of thirty three percent (33%) from 2002 to 2007. • Sixty six percent (66%) of residents rated the amount of cultural activities as about the right amount. 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 avaliable. Item Summarv/Recommendation: 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 Flood, All Risk Property (including windstorm) Boiler/Machinery, and Fine Arts'., (Bass Museum and Art in Public Places) Insurance up to the current budgeted amount of $1.95 million. Adviso Board Recommendation: Not Applicable Financial Information: Source of Amount Account Funds: 1 540.1792.000378 FY08-09 $1,485,000.00 All Risk Wind 06/01/09-05/31/10 331,000.00 Flood 40 Locations 06/01/09-09/30/09 540.1792.000390 53,000.00 Fine Arts 06/01/09-05/31/10 Total: $1,869,000.00 2 540.1792.000378 Included in the FY 09-10 Proposed Budget $ 81,000.00 Flood 14 Locations 10/01/09-05/31/10 3 $1,950,000.00 Total OBPI Total Financial Impact Summary: Ci Clerk's Office Le islative Trackin Clifton Leonard, Risk Manager Sign-Offs: D artment Director Assistant City Manager City Manager l T:WGENDA\2008\may1309\Regll,~r\P-INS09sum.doc / I ~_~ '1~ ~ ,~ ' ~ ~,1~. "'~ A~~I~I~A ITEM ~ 7 E ~A~rl~ s-13--~ A~ ~ ~A City of Midmi Beath, 1700 Convention Cenier 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 13, 2009 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) AND FINE ARTS INSURANCE (BASS MUSEUM, AS PROPOSED BY ARTHUR J. GALLAGHER RISK MANAGEMENT SERVICES, INC., THE CITY'S BROKER OF RECORD. ADMINISTRATION RECOMMENDATION: Adopt the resolution. FUNDING: Funding for this item is included in the FY 2008-09 Risk Management claims account No. 540-1792-000378 and 540-1792-000390 ($1,816,000 for All Risk/Wind and Flood, $53,000 for the Fine Arts). In addition, $81,000 will be included in the FY 2009-10 Proposed Budget Account No. 540-1792-000378 for flood. ANALYSIS: The City's property insurance needs are covered by the following four (4) policies: (1) Flood, (2) All Risk (including windstorm), (3) Boiler/Machinery (equipment breakdown) and (4) Fine Arts (Bass Museum and Art in Public Places). The current policies expire on May 31, 2009 and the new policies would be effective from June 1, 2009 through May 31, 2010. The Total Insured Value (TIV) for all buildings/structures, throughout the City is $674,008,094.00 (determined by appraisal and new construction) with an additional estimated $41,000,000.00 for Fine Arts (Bass Museum and Art in Public Places). The City relies on the Federal Emergency Management Agency (FEMA) to provide financial assistance for expenses and damages related to flood and/or windstorm that are not covered by insurance if designated as a Federally Declared Emergency. The City utilizes the services of Arthur J. Gallagher Risk Management Services, Inc. (Gallagher), to secure all property insurance. Annually, prior to policy expiration, the City directs Gallagherto contact all available markets for property insurance quotes. Attached are the estimated renewal figures from Gallagher. The first coverage, Flood, is only offered through the National Flood Insurance Program. The policy limits are $500,000 for buildings and $500,000 for building contents with a City Commission Memorandum May 13, 2008 Purchase of Property Insurance Page 2 of 3 $5,000 deductible per location. The City purchases a separate Flood policy for each location within the City. The individual policies renew from June 1, 2009 through December 31, 2009. The annual premium for 2008-2009 was $408,000.00. The estimated premium for 2009-2010 is $412,000.00. The increase in premium is due to new construction for City facilities. To qualify for aid from FEMA for loss due to flood, the Stafford Act/FEMA requires that the City purchase reasonably available insurance. The second policy, All Risk, can be purchased with or without Windstorm coverage. In order to comply with 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 2008-2009 was $1,460,346.00. The policy included Windstorm sub-limits of $20 million. This policy was offered by Lexington Insurance Company. Lexington Insurance Company was the only carrier willing to provide primary coverage for All Risk that included a Windstorm sub-limit. Lexington has indicated that they will offer a renewal of the policy for 2009-2010. Based on initial discussions with Lexington insurance, Gallagher estimates that to renew at or near the current premium of $1,460,346.00 the Windstorm sub-limit will need to be lowered from $20 million to $10 million and the Windstorm deductible may need to be increased. The new premium with the lower Windstorm sub-limit of $10 million and possible increased wind deductible (Option 1) is estimated to be $1,464,324.00. To renew the current level of insurance with a Windstorm sub-limit of $20 million and possible increased wind deductible (Option 2), the estimated premium would increase to $1,843,304.00. The City has directed Gallagher to look at alternatives such as increasing deductibles and further negotiating the base rate in order to maintain the current premium amount, the current level of Windstorm coverage, and remain within budget. 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 City has not elected to purchase this coverage. In the past, the Administration has been asked to investigate whether or not insurance should be obtained through Citizens Property and Casualty (Citizens). Citizens offers a $1 million loss limit. Individual buildings valued in excess of $1 million will have only $1 million in coverage. The City currently has 36 buildings valued in excess of $31 million. In order to obtain coverage from Citizens, the agent and applicant must certify that there is no coverage available in the authorized maker for perils of hurricane, windstorm, and hail. If coverage were to be obtained through Citizens, the City would still be required to purchase the primary coverage from Lexington Insurance. In addition to being cost prohibitive, in the event of a loss, the insurance adjustment process (due to varying deductible and loss limits) would result in possible coverage issues and delayed claim payments. Additionally, FEMA would not respond until all insurance claims were adjusted. The Administration has reviewed this option with Gallagher and does not recommend that the City consider Citizens. 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. This policy provides $100 million in coverage with a $5000 combined deductible. The premium for 2008-2009 was $17,778.00 with coverage provided by City Commission Memorandum May 13, 2008 Purchase of Property Insurance Page 3 of 3 Zurich-American. It is anticipated that the renewal premium for 2009-2010 will be $18,394.00 due to a three (3) percent increase in Total Insured Values. The fourth coverage, Fine Arts, provides coverage for the Bass Museum and art throughout the City, including Art in Public Places. This policy provides coverage for all perils (All Risk, Windstorm) for insured value. The premium from January 1, 2008 to December 31, 2008 was $51,469.60 with coverage provided by Lloyds of London. On January 1, 2009, the policy term was extended to May 31, 2009, so that this policy renewal term would be consistent with all other City property insurance policies. The extended policy cost for the period between January 1, 2009 and May 31, 2009 was $21,025.17. The estimated premium for 2009-2010 is $53,000.00. The City anticipates a slight increase of approximately $1,500 from last year due to the increased values of the art. The above insurance policies are offered for a one (1) year period and generally offer renewal terms. The Administration recommends that the Mayor and Commission authorize the renewal of the proposed policies for up to four (4) additional one (1) year terms at the City's discretion, provided that premium amounts do not exceed budgeted funds. CONCLUSION The Administration recommends that the Mayor and City Commission approve the purchase of Flood Insurance, All Risk Property Insurance (including windstorm) and Boiler/Machinery Insurance for City buildings and contents (including new construction) and Fine Arts, Insurance (Bass Museum and Art in Public Places), as proposed by Arthur J. Gallagher Risk Management Services, Inc., the City's Broker of Record up to the current budgeted amount of $1,950,000.00. T:\AGENDA\2009 \may1309\Regular\P-INS09.doc Art~~ur~I. ~alla~l~er Disk Iv9ar€a~e€ne~nt Services, Inc. May 6, 2009 Mr. Clifton Leonard City of Miami Beach 1700 Convention Center Drive Miami Beach, FL 33139 Re: 200~J - 2010 EstiTl~ated Renewal Premiums Dear Cliff, The Property Insurance program for the City of Miami Beach renews on June 1, 2003, and you have asked us to provide you with an estimate of what we believe the renewal premiums will be for Property, Boiler & Machinery, Flood, and Fine Arts insurance. Accordingly, please note the following: As to Master Property Insurance: Last year we were able to obtain a significant rate reduction for the City. This year, however: we are seeing the property insurance market harden as a result of industrywide underwriting losses in 2003, as well as the weak investment climate. As a result, we are advised that Lexington Insurance Company, is seeking to increase its rates by about 20°f~. Accordingly, we offer the following two renewal projection options: C7ption I - Renewa) based an expiring premium $10 million Named Windstorm Limit {$200 million All Qther Perils) _. 2008-2009 2009-20"10 est. -__ _. _ TIV -- _ ---.. f X653,942,644 -- $674 U08 094 _ 3 07% ° n rIV Change ___ _ ~. __ ___. -- ....-_ _. I Named Wrnd Limit ~2U,UUU,ODU I __ _ X10 OUP UUU _ _ Named Wind Deductit~le 4-strrnated Premium . 5~/0 ~ min. ~ 1 ODU,UOU~ ~~ ~ Possible Increase~ UU _ . ~1, ~ -..... FL CAl~ Fund Assessment 1 la ~ .... 13UU _.. _~ ~14F3 OU .. i Citizens Surcharge 1.4°l0 _... NIA $20,U24 EMPA - _ $4 . ___ . _.._. 4 _. ___ -_. Tatal ~1' 444,304 , ___1,464,. &200 Northwest 41st Street, Suite X00 Mismi, FL 331G6 Ivlain 305.592.60{30 Fax 305.592.4049 wwva.aiy.ce~rr, Artl-~tTr J. Gallaghc~- Risk I~lanagement~ Sc~`vtces, Ir~c. dption I1 -Renewal based on ex~irinct limits $2..0 million Named Windstorm Limit {$200 million Ali Other Perils) 2008-200`3 t 2009 2010 est. i ~ ____ _ -- TIV X653 942.644 OU8 094 ~v614 l"1V Chafe . 3.07% Named Wind Limit $20,000,000 $20,000,000 Named Wind Deductible r 5°l0 /min. $1,000,000 1~ossibfe lrlcrease Estimated Premium $1,430,000 __.__..---.-X1,800,0©© FL CAT Fund Assessment 1% $14,300 $18,000 Citizens Surcharge 1.4% N/A $25,200 EMPA _ _ _ __..___ $4 _ r-~.. ~ ..... $4 __.. _ . _ T©tal _. _ _1,444,304 _ ---- $fi,843,204 We consider these to be estimates, based on what we are hearing from the market, and we are working to minimize the hardening property market's impact on the City's budget. In addition: we are at market seeking additional carriers to either compete with Lexington, or offer additional capacity so that the Gity can obtain as much coverage as possible within its budget. Please note that this year, in addition to the 1 °f° Florida Hurricane Catastrophe Fund surcharge, Citizen's proper#y Insurance Corp is assessing a `1.4°I° surcharge. These surcharges are intended to a~cgment the reserves of these entities, which have been depleted aver the bast. several storm seasons. Public En#ities are not exempt from these assessments. As to Flood Insurance: Further to our previous discussions, we are expecting a g°lo rate increase from the National Flood Insurance Program. Accordingly, we es#imate that the tots! premium for the City's Flood policies that fall within this budget period will increase from $407,988 i;o approximately $412,000. As to Boiler c~ Machinery insurance: Last year we were able tc secure better terms and a lower premium by moving the City's coverage to Zurioh. ~t~l~is year we are advised that Zuricl~~ will not increase its rates, but since the City's valt;es have gone up 3°!0, the premium will be slightly higher, increasing from $17,778 to $18,304. 8200 Nc~€tiiv~rest 4'.st Sv~et, 51111c', 200 M1ianii, FL 33166 Main 305.592.6080 F ~x 305.592.004.9 'NVVW.BJQ.CO+'ll Artl~tn~ j. C_~allz~l~er Disk i~~lar~a~criler~t `services, ln~. Rs to Fine .Arts #nsurance: Last year you asked us to extend the Fine Arts pragram to 06/01/09 so that it wou#d run concurrently with the rest of the property program. We have now received indications for the 06/01/09 renewal of this coverage at approximately $53,fl00. As to Citizens Property Insurance Corp._: You also asked us to advise you of the availability of windstorm coverage for the City through Citizens Property Insurance Corp. Please note that Citizens is the option of last resort, and in order to obtain coverage from Citizens, the agent and applicant must certify that there is no coverage available in the authorized market for the perils of hurricane, windstorm, and hai#. As there is coverage availab#e in the authorized market, the City is unable to obtain coverage from Citizens. The above-estimated premiums do not #nclude TRIA Terrorism coverage (where availabie) a~s the City has not been purchasing this cav~rag~. P#ease iet me know if you wouid like to explore options for securing Terrorism coverage (TR#A andlor on a standalone basisj. The preceding are only premium estimates based on the information vve have at this time. We wili continue working with the markets to obtain tine 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; # appreciate t#~e opportunity to be of service to the City. Sincerely, Arthur . Gallag Risk Management Services, Inc. i Craig S ~ a nstein: CPCU, ARM, ASLI, ARe Area A sistant Vice President 820o Ntrtf•~wesi ~1 st Street. Suite 200 M18f711, FL_.331t~ri Main 305.5~32.OD80 Fax 305.592.4043 www.aiy.con~