2002-24879 Reso
RESOLUTION NO. 2002-24879
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
BOILERlMACIllNERYINSURANCE FOR CITY BUILDINGS
AND CONTENTS, FOR A COMBINED ANNUAL PREMIUM
OF $1,878,917.00 (NET OF BROKER COMMISSIONS), FOR A
ONE-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 for a total annual premium of$170,000; All Risk property insurance (including
a windstorm sublimit of $20 million) with Lexington Insurance Company, for a total annual
premilim of$I,688,500.00; and Boiler/Machinery insurance with Hartford Steam Boiler, for a total
annual premiumof$20,417.00; for a combined annual premium of$I,878,917.00; and
WHEREAS, funding is available from the SelfInsurance Fund Number 540.1792.000378;
and
NOW, THEREFORE, BE IT DULY RESOLVED THAT THE MAYOR AND CITY
COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA hereby approve the purchase
of Flood Insurance, All Risk Property insurance (including a windstorm sublimit of$20 million) and
Boiler/Machinery insurance for all City-owned buildings and contents, for a combined annual
premium of $1,878,917.00 for a one-year period as proposed by Arthur 1. Gallagher & Co., the
City's broker of record.
PASSED AND ADOPTED this 29th day of
,2002.
ATTEST:
~r f{lk~
APPROVEOI-STO
FORM & LANGUAGE
& FOR EXECUTION
F:\ATIO\Dlll\M'lJlESOUJT1IFUlODlN&.WPD
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May-14-2002 10:51am From-ARTHUR J, GALLAGHER-MIAMI I
, 3055931408
T-479 P,002/011 F-8!3
Arthur 1. Gallagher & Co. - Miami
National Public Entity and Scholastic Division
PROPERTY/BoILER & MACHINERY
RENEWAL PROPOSAL
FOR
CITY OF MIAMI BEACH
PRESENTED BY:
ARTHUR J. GALLAGHER & CO. - MIAMI
NATIONAL PUBLIC ENTITY AND SCHOLASTIC DIVISION
JORI L, VAN DER VOORT, ARM
&
LISETTE M. de DIEGO
May 14, 2002
IMPORTANT: This Proposal is an outline oflhe coverages proposed by the insurers, based OIl me infonnation provided by your
company. It does nOl include all tenns, coverages, excJusJons, limitations, conditiOns of th.. aClual contract language, The policies
themselves must be read for those derailS, Policy forms for yOur reference willOe made available upon requll$l
8200 Northwest 41st Street Suile 200
MiamI. FL 331E16
30S.SEl2,OOeO
Fax 305,592,4049
www.8jg.com
Jl'O. :;"
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May-14-2002 10:52am From-ARTHUR J, GALLAGHER-MIAMI I
, 3055931408
T-479 P,003/011 F-8!3
ARTHUR J. GALLAGHER & CO.
ABOUT YOUR BROKER - ARTHUR J. GALLAGHER & CO.
. 4th largest broker in the United States and the World
. A public company traded on the New York Stock Exchange
. Over 200 offICes throughout the United States and in all major insurance market centers
. Over $4 billion worth of premiums placed Worldwide
. 5.200 employees worldwide linked together by Gallagher Online for immediate access to 11arket
information and client solutions
. Known nationally as the Public Entity and Scholastic experts
OUR FLORIDA PUBLIC ENTITY AND ScHOLASTIC POSITION
. Largest broker for Individual/Pooled Self Insured Programs for Public Entities and Schools
. AJG is known for its commitment to public entity clients from a time in the past when no on ~ was
interested in serving the public entity marketplace
. AJG handles more Florida Public Entity and Scholastic Major Property Schedules than any ether
broker
., A long list of well known satisfied clients serve as our best credentials
· 63 Florida Cities
· 20 Flonda County Govemments
· 34 Florida County School Systems
· 28 Florida Community Colleges
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May-14-Z00Z 10:53am From-ARTHUR J, GALLAGHER-MIAMI I
, 3055931408
T-479 P, 006/011 F-8!3
CITY OF MIAMI BEACH
.EXECUTIVE SUMMARY
FLORIDA PROPERTY MARKET STATUS (As OF MAY 2002):
)- The Property & Casualty marketplace was already "hardening" prior to the events of
September 11, 2001.
)> The events of September 11 have sent a .shock wave" through the Property & Casualty
industry have accelerated a continued hardening of the marketplace.
~ Prior to September 11, 2001, Property insurance carriers and re-insurers had their
second worst financial results in their history in 1999 and again in 2000(the worst being
in 1992 from Hurricane Andrew.
)> To date. Property re-insurers have:
1. Reduced overall limits offered to retail carriers (the amount of insurance).
2. Substantially increased treaty attachment points (the deductible of sorts to the
reinsurance policy),
3. Tightened program tenns and conditions.
4. Substantially increased premiums.
Carriers are passing these additional costs off to the consumer.
)> Carriers are cutting back property insurance capacity in "CAT" (catastrophic) prone
areas, Le. all of Florida. Rates for Florida public sector! educational risks were seeing.
on average, about 30% to 60% increases. Some higher. some lower. In the 45 days
following the WTC - accounts have been seeing rate hikes of 80% to 100% or higher.
Most carriers are requiring 5% windstorm deductibles, especially in the tri-county area.
)- Insurers and re-insurers are actually "underwriting" risks now. Focus is on profitability.
Technology is driving the underwriting.
)- The wrc Disaster and associated losses will ultimately reduce overall capacity within
the P & C industry as carriers either choose not to underwrite certain risks or leave the
marketplace completely
5
May-14-2DD2 lD:53am From-ARTHUR J, GALLAGHER-MIAMI I
. 3D559314D8
T-479 P,DD7/Dll F-8!3
CITY OF MIAMI BEACH
How THE INSURANCE MARKET VIEWS YOUR EXPOSURES:
1. 100% Hi9hly Concentrated Property: Large Property Schedule, 1 00% South Florida
coastal risk. NO inland spread of risk, 100% of property is exposed to wind and
considered coastal. ...almost waterfront property.
2. Loss Limit. Wind Limit is absolutely within the 100% loss limit. In a direct hit
stonn, the $20,000,000 limit is a 100% LOSS. Markets expect to payout the entire
$20,000,000 limit in a medium to large size wind stonn. Therefore, their pricing must
reflect the exposure.
3. Probable Maximum Loss - Your Probable Maximum Loss (PML) will range from
$77,000,000 to $170,000,000 (or 2S% to 50% of your Total Insurable Values). Your
renewal of $20,000,000 (or 7% ofyourTIV) is not enough coverage. We stronalv urae
the City to consider purchasing higher limits of wind coverage.
4. Hurricane Andrew -The $1,SOO,OOO damage the City incurred from Hurricane Andrew
is considered peripheral damage and is NOT a benchmari< for considering the expected
loss from a medium to large windstorm. Hurricane Andrew directly hit areas
approximately 20 miles south of Miami Beach. All carriers expect the City to sustain
substantial damage within your PML in a medium to large windstorm,
5. High Frequencv Losses -In addition to the high probable maximum loss, the City has
experienced a significant amount of tire and water damage claims. The following charts
outlines the City's historical property losses:
Loss HISTORY
DATE OF Loss AMOUNT DESCRIPTION
08/24/92 $1,500,000 Hurricane Andrew
01/17/95 $227,731 Water Damage at Convention Center
09/1995 $500,000 subrogated Fire at old City Hall
09/26/99 $137,Sn Fire at South Pointe Facilities
06/08/99 $197,732 Combined PropertylBoiler & Machinery
02123/01 $76,000 Estimated Water Damage to Floor at Bass Museum
6
~ay-14-2002 10:5Sam From-ARTHUR J, GALLAGHER-MIA~I I
, S0559S1408
T-479 P, 008/011 F-8E S
CITY OF MIAMI BEACH
6. ExDosure to Fire: The City must also consider their exposure to loss by a fire. There
are several buildings that have significant values that could be affected in the event of a
fire. The top 4 Valued Buildings in the City are as follows:
fJ. BUILDING NAME! ADD~ESS VALUE
1. Convention Center 1900 Convention Center Drive $156,774,032
2. Theater 1700 Washington Avenue $51,040,775
3. Police Station 1100 Washington Av $23,920,649
4. City Hall 1700 Convention Center Drive $15,280,089
RENEWAL NEGOTIATIONS:
After the events of September 11, 2001, we knew that once again, the market would be
extremely difficult for placing the City's wind coverage. We developed an underwriting
submission based on the information you provided and approached the following carriers
on the City's behalf. The results from this market solicitation follows:
MARKETING SUMMARY
CA~R1E~: QUOTEDI COMMENTS
DECUt4ED
Lexington Insurance Company Quoted Primary 10,000,000
Allianz Underwriters Ins. Company Quoted Not Compentitive 100MM X $70 @
$140,000
Great American Excess & Surplus Lines Quoted $5MM XS $15MM
L10yds of London Quoted $2.5MM XS $10MM
U.S. Fire Insurance Co. Quoted $2.5MM XS 12.5MM
Chubb Custom Declined Declined, No Florida Wind Capacity
Commonwealth Ins. Co. Declined Declined, No Florida Wind Capacity
Essex Ins. Co. Indication $5MM XS $10MM @ $500,000
First State Management Group (Paoific) Declined Due to pricing and attachment
...
7
May-14-Z00Z 10:54am From-ARTHUR J, GALLAGHER-MIAMI I
. 3055931408
T-479 P, 009/011 F-B! 3
-
CARRIER: QUOTEDI COMMENTS
DECLl~~D
-
St. Paul Insurance Companies Declined Due to pricing and attachment
Hartford Specialty Insurance Company Declined Due to accumulation and distance tl)
coast
Royal Specialty Underwriting, Inc. Declined No new wind capacity in Dade Cour~
Genstar Quoted Not Competitive $2.5MM XS $10M~1
$200,000
Westchester Specialty Group Pending
-
Wausau Declined Due to Florida Wind exposure
-
ACE USA Declined Due to Florida Wind exposure
-
Coregis Declined
Zurich Pending
Endurance Specialty Declined
AXIS Declined Due to pricing and attachment point
Montpelier Declined Due to wind exposure and pricing
Goshawk Declined Due to pricing and attachment point
ARCH Declined Due to pricing and attachment point
IRI Declined Due to wind accumulation and pricin! I
CNA Declined Due to wind exposure
Glancoe Declined Due to wind exposure
Travelers Declined Due to wind exposure and pricing
CITY OF MIAMI BEACH
~ Of the 27 carriers that were approached, only 5 carriers were willing to participate in
the program.
8
May-14-Z00Z 10:54am From-ARTHUR J, GALLAGHER-MIAMI I
, 3055931408
T-479 P,010!011 F-8E3
CITY OF MIAMI BEACH
~ 20 carriers have declined the submission due to requested pricing, limited capacity
issues and the coastal exposure!
~ 3 Carriers are reviewing the submission, but can not release quotes or indications at
this time. We expect their quotations over the next week.
PROPERTY PROGRAM STRUCTURE:
As mentioned previously, the City's Probable Maximum Loss (PML) is in excess of
$77,000,000. This means that in a Category 3, 4 or 5 hurricane, insurance companies
expect to pay in excess of $77,000,000. The renewal program presented to the City
provides for $20,000,000 of Wind Coverage, (in lieu of the $25,000,000 Sublimit, as it has
not been completely filled. We expect to have it completed over the next week).
The $20,000,000 is substantially less than your PML, and we do not feel that this amount is
adequate. In fact, we urge you to consider buying more coverage, not less. We will obtain
quotations for additional limits of insurance at the City's direction.
As of this writing, the pricing presented is not firm. Indications have been presented for
several layers while the actual pricing is being approved by Senior Management at the
companies. The pricing structure to date is as follows:
Limits, Structure & Subscriptions
Total Insured Values: $369,936,042
$170,000.000 Limit Per Occurrence - S20.000.000 Named Windstorm
Deductible for Named Windstorm is 5% (subiect to $15.000.000 maximuml$1,OOO,000 minimum)
Layers Company Limit Premi J
3.... Excess L~er Zurich American- $150.000,000 pJo $150,000,000 $230,(
$150,000,000 per (Indication Only)
occurrence excess of
$20 000.000
2M Excess Laver Great American E & S $5,000,000 pIa $5,000,000 $220,(
$5,000,000 per
occurrence excess of
$15,000.000
jOl Excess Layer United States Fire Ins. Co. $2,500.000 pIa $2,500,000 $337,e
$5.000,000 per Lloyd's of London $2,500,000 plo $2,500,000
occurrence excess of
$10,000,000
Prims'Y Laver Lexington Insurance Co $10.000,000 plo $10,000,000 $900,0
$10,000,000 per
occurrence primaly
laver includina Wind
Total Premium $1,687,!
. Zurich American pricing is an indication onlv and is contingent on management
approval.
.!
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9
May-14-Z00Z 10:55am From-ARTHUR J, GALLAGHER-MIAMI I
. 3055931408
T-479 P,011/011 F-8!3
CITY OF MIAMI BEACH
. We are also in negotiations with several other carriers to possibly reduce the pricing
in the 10t and 3rd Excess Layers. We anticipate having additional quotations by the
end of next week.
BOILER AND MACHINERY RENEWAL PROGRAM
)- All policy terms, conditions and exclusions will remain as expiring except for the
following:
. Computer Equipment will continue at $1.000,000.
). Your Current carrier. Hartford Steam Boiler paid a loss of $116,000 for the pumping
station claim. The remainder was paid by Allianz Insurance Company, the City's
property carrier.
)- Boiler and Machinery Coverage is also experiencing tightening. For accounts with
good loss history, carriers are looking for a rate increase between 15-20%.
)- Despite the large claim that was paid, Hartford Steam Boiler has increased the
premium slightly. The renewal premium has increased from $17,158 to $20.417, a
17% increase.
SUMMARY:
What we are facing in the Insurance Marketplace is unprecedented. While there have
been Mhard" market conditions in the past. such conditions usually applied to a single line of
coverage. i.e. 1980's Casualty, Property after "Andrew", etc. We have not experienced the
difficulties to the magnitude we are now seeing across all Jines of coverage.
The current market conditions can be described as proViding:
1. Less Coverage
2. Higher Rates
3. Higher Deductibles
4. More Restrictive Terms
We believe the program presented to the City is consistent with the current property market
and believe the purchase of such coverage represents good value. although we feel the
City is not purchasing enough insurance. We recommend the City purchase at least to
their Probable Maximum Loss of $77,000,000.
We thank you for allowing us to serve you over the past 4 years. We value the City.s trust
and pledge our personal and corporate commitment to serviCIng your needs.
,
\
I
10
CITY OF MIAMI BEACH
COMMISSION ITEM SUMMARY
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Condensed Title:
Resolution authorizing the purchase of Flood, All Risk Property Insurance (including windstorm) and Boiler
Machinery Insurance for an annual premium of $1 ,878,917,00 as proposed by Arthur J, Gallagher and Co.,
the City's Broker of Record.
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 available,
Item Summary/Recommendation:
The current property insurance marketplace has been severely impacted by catastrophic losses over the
past several years (natural disasters, the events of September 11,2001), Both Public and Private sectors
are experiencing substantial increases (50% to 100% range). Approve the purchase of Flood Insurance,
All Risk Property Insurance (including windstorm) and Boiler Machinery Insurance.
Advisory Board Recommendation:
I Not Applicable
Financial Information:
Amount to be expended:
Source of
Funds:
540.1792.000378 Property
Insurance Self-Insurance Fund
Si n-Offs:
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AGENDA ITEM ;;;71(
DATE S-;..r;-o;;",
CITY OF MIAMI BEACH
CITY HALL 1700 CONVENTION CENTER DRIVE MIAMI BEACH, FLORIDA 33139
htlp:\\cI,miami-beach.f1,us
COMMISSION MEMORANDUM
TO:
Mayor David Denner and
Members of the City Commission
Jorge M. Gonzalez J:L
City Manager
A RESOLUTION OF T E M OR 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, FOR A COMBINED ANNUAL PREMIUM OF
$1,878,917.00 (NET OF BROKER COMMISSIONS), FOR A ONE-YEAR
PERIOD AS PROPOSED BY ARTHUR J. GALLAGHER & CO., THE
CITY'S BROKER OF RECORD.
DATE: May 29, 2002
FROM:
SUBJECT:
ADMINISTRATION RECOMMENDATION:
Adopt the resolution.
FUNDING:
Funds are available from the Self-Insurance Fund Number 540.1792.000378.
ANALYSIS:
The City's property insurance needs are covered primarily by three policies: Flood, All Risk
(fire, explosion, lightning) and Boiler/Machinery (equipment breakdown). The predominant
peril to City-owned facilities is storm related loss due to flood and/or windstorm damage.
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. Eligibility for FEMA
reimbursement is Federally governed by the Stafford Act.
The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act)
authorizes the President (FEMA per Executive Order) to provide financial and other forms
of assistance to State and local governments, certain private nonprofit organizations and
individuals to support response, recovery and mitigation efforts following Presidentially
declared major disasters and emergencies. The Stafford Act describes generally the
declaration process, the types and extent of assistance that may be provided and
fundamental eligibility requirements.
To qualify for aid in case of loss due to flood, the Act requires that we purchase the
maximum insurance available. The City has complied with that mandate in the past by
purchasing coverage from the only available source, Le" the National Flood Insurance
Program. Limits are $500,000 for buildings and $500,000 for building contents. There is
a $5,000 deductible per location. The City purchases a separate Flood policy for forty-
eight locations within the City. The individual policies renew from July 2002 through
December 2002 for one year. The total annual premium for 2000-01 was $170,000. We
do not anticipate any premium increase for 2001-02.
The second coverage, All Risk, can be purchased with or without Windstorm coverage.
With regard to FEMA's eligibility requirements to qualify for reimbursement for losses due
to windstorm, insurance need not have been purchased if the City has not been the
recipient of past FEMA monies in excess of $5,000 for damage to buildings. Miami Beach
meets that criterion, Hence, the City can choose how much risk assumption it wants to
take on, Le., self-insure and rely on FEMA aid or purchase Windstorm coverage. The city
currently purchases All Risk property insurance from Lexington Insurance Co. with a
Windstorm sublimit of $25,000,000 (maximum coverage offered) for an annual premium
of $1,050,000.
The current property insurance marketplace has been severely impacted by catastrophic
losses over the past several years. As a result of this, carriers are looking at premium
increases and alternative methods to limit coverage (attachment 1-Proposal).
The City's broker, Arthur J. Gallagher Co, (Gallagher), following our directions, has
identified a replacement policy which is All Risk including Windstorm protection for both
named and non-named storms. Lexington Insurance Company is the only insurance
company out of twenty-three (23) contacted that is willing to provide a quote for primary
coverage (attachment 1-Page 7)
The new policy, which would be effective on June 1, 2002, provides for identical coverage
with changes being to the All Risk limit, Windstorm sublimit, theWindstorm deductible and
premium rate. The All Risk coverage limit (excluding Windstorm) is reduced from
$360,947,000 to $170,000,000 and has a per occurrence deductible of $100,000 (no
change from current policy). The All Risk coverage is offered with a Windstorm sublimit
of $20,000,000. The Windstorm sublimit provides for a 5% deductible subject to a
$1,000,000 minimum $15,000,000 maximum per occurrence.
Previously, the insurance market would not quote All Risk property insurance at less than
the TIV (Total Insured Value) which is $360,947,000. In the event of a loss, the
$170,000,000 is treated as a blanket amount and exceeds the value of anyone City
structure. The purchase of $170,000,000 in the All Risk limit, provides adequate coverage
with some reduction in premium.
We have reviewed the premium increase with Arthur J. Gallagher and they advise that
Insurance Industry models indicate that the Probable Maximum Loss (PML) will range from
$85,000,000 to $175,000,000 in the event of a direct hit by a category 2 or stronger
hurricane to the City of Miami Beach, Since the amount of windstorm insurance offered
represents only a small portion of the Probable Maximum Loss, (PML), the total premium
would not decrease by purchasing a policy with a larger deductible. We have surveyed
other local municipalities and determined the following regarding premium increases:
Governmental Entity Premium Percent Increase
City of Coral Gables 50%
City of Hialeah 50%
Monroe County 100%
Miami-Dade County 100%
The third coverage, Boiler/Machinery provides coverage for property built to operate under
a vacuum or pressure, or used for the generation, 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 2000-01 was $17,158. The new premium will be
$20,417. The additional premium of $3,259 is due to increased property/equipment values
and current market conditions.
The Administration recommends that the City purchase Flood, All Risk (with a $20,000,000
Windstorm sublimit), and Boiler/Machinery insurance coverage. While the All Risk policy
premium is a considerable sum of money, we must recognize that aid from FEMA is not
"contractual" and that the amount of assistance varies depending upon the extent of a
declared disaster. It is important to understand that FEMA is not an insurance company.
Its policies, procedures, and administration are effected by political and bureaucratic
factors that can retard responsiveness and/or reduce anticipated financial aid, Insurance
companies, presumably, respond to claims pursuant to the contractual obligations imposed
by the Policy. That distinction has increased relevance when disasters occur, recoveries
are sought, and speed is important. In order for the City to be in the position to make a
prompt recovery should we be struck by a major storm, we believe that the purchase of this
coverage represents good value.
In summary, the Administration recommends purchase of the following coverage:
June 2001 Coveraae
June 2002 Coveraae
1. National Flood Insurance Program (NFIP)
Limits: $ 500,000 Building
$ 500,000 Building Contents
Deductible: $ 5,000 Per Location
1. National Flood Insurance Program (NFIP)
Limits: $ 500,000 Building
$ 500,000 Building Contents
Deductible: $ 5,000 Per Location
Premium:
$170,000.00
Premium:
$170,000.00
2. Lexington Insurance Company (Best's Rating A VIII) 2. Lexington Insurance Company (Best's Rating A VIII)
(Primary Coverage) (Primary Coverage)
Limits: $360,947,100 All Risk Peril Limits: $170,000,000 All Risk Peril
Sublimits: $ 25,000,000 Named-Wind Sublimits: $ 20,000,.000 Named-Wind
Deductibles: $ 100,000 All Risk Peril Deductibles: $ 100,000 All Risk Peril
2% Named-Wind 5% Named-Wind
Premium: $1,050,000.00 Premium: $1,688,500.00
3. Hartford Steam Boiler Inspection & Insurance Co. 3. Hartford Steam Boiler Inspection & Insurance Co.
(Best's Rating A+ X) (Best's Rating A+ X)
Limits: $100,000,000
Deductible: $ 5,000
Premium:
TOTAL PREMIUM:
Limits: $100,000,000
Deductible: $ 5,000
$ 17,158.00
$1.237.158.00
Premium:
$ 20,417.00
$1.878.917.00
f:\$alll1isk\cliffIP-1 NS02,doc
TOTAL PREMIUM: