2003-25220 ResoRESOLUTION NO. 2003-25220
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, FOR A COMBINED ANNUAL PREMIUM
OF $1,778,577.00 (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 $25 million) with Lexington Insurance
Company, for a total annual premium of $1,585,209.00; and Boiler/Machinery insurance
with Hartford Steam Boiler, for a total annual premium of $23,368.00; for a combined
annual premium of $1,778,577.00; and
WHEREAS, funding is available from the Self Insurance 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 approves the
purchase of Flood Insurance, All Risk Property insurance (including a windstorm sublimit of
$30 million), and Boiler/Machinery insurance for all City-owned buildings and contents, for
a combined annual premium of $1,778,577.00 for a one-year period as proposed by Arthur
J. Gallagher & Co., the City's broker of record.
PASSED AND ADOPTED this 21st day of M/~ ~~03.
Mayor
A-I-rEST:
ic~cl'(~er~k
APPROVED AS TO
FORM & LANGUAGE
& FOR EXECUTION
Arthur J. Gallagher & Co. - Miami
National Public Entity and Scholastic Division
PROPERTY/BOILER & MACHINERY
RENEWAL PROPOSAL
FOR
CITY OF MIAMI BEACH
June '1, 2003- June 1, 2004
PRESENTED BY'
Arthur J. Gallagher & Co.
ARTHUR J. GALLAGHER & Co. - MIAMI
NATIONAL PUBLIC ENTITY AND SCHOLASTIC DIVISION
JORI L. VAN DER VOORT, ARM
Area Vice President
LISETTE M. de DIEGO
Area Assistant Vice President
Gigi Concepcion
Technical Assistant
May 1, 2003
IMPORTANT: This proposal is an outline of the coverages proposed by the insurers, based on the information provided byyour company. It
does not include all terms, coverages, exclusions, limitations, conditions of the actual contract language. The policies themselves must be
read for those details. Policy forms for your reference will be made available upon request.
8200 Northwest 41 st Street, Suite 200
Miami, FL 33166
305.592.6080
Fax 30.592.4049
www.ajg.com
CITY OF MIAMI BEACH
ARTHUR J. GALLAGHER & CO.
ABOUT YOUR BROKER -- ARTHUR J. GALLAGHER & Co.
· Arthur J. Gallagher & Co. and the City of Miami Beach have a enjoyed a 7 year
relationship that has proven comprehensive and cost effective.
· 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 market 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
one was interested in serving the public entity marketplace
· AJG handles more Florida Public Entity and Scholastic Major Property Schedules
than any other broker.
· A long list of well known satisfied clients serve as our best credentials
· 63 Florida Cities
· 20 Florida County Governments
· 34 Florida County School Systems
· 28 Florida Community Colleges
Page 1
CITY OF MIAMI BEACH
,¸
EXECUTIVE SUMMARY
THE STATE OF THE INSURANCE MARKET (MAY 2003)
On a ,qoing forward basis it is important to understand what's driving the market right now as
we work through your renewal negotiations.
The ebbs and flows of the insurance market are created by more than just the primary and
reinsurance markets. There are five (5) macro market factors that intermingle to create the
insurance market at any point in time:
FIVE MACRO MARKET FACTORS
1. Reinsurance Market Results
2. Primary Market Results
3. The Economy
4. Investment Income, Interest Rates, Investment Portfolio Contraction / Expansion
5. The Mood/Attitude of War, Terrorism, the Fear of the Unknown
CURRENTLY:
All Five (5) Market Factors are at critical lows all at the same time
Shake all five (5) up at the same time and the insurance market thinks and responds to
the pluses and minuses of each of the 5 market factors
Items 1 & 2 will respond together as combined ratios improve
Item 4 is very important to items 1 & 2 and will improve as the economy, item 3,
improves and mood and attitude in item 5 improves.
Page 2
CITY OF MIAMI BEACH
OUR OPINION OF THE NEAR FUTURE OF THE FIVE (5) MACRO MARKET FACTORS:
The Worldwide Re-Insurance Market is still a serious under performer and is not
"fixed." Their year 2002 results will not drive a positive market change in 2003.
Domestic Primary Market There are a few well managed companies who will show
improved results from the 2002 market changes. There are many markets that are
struggling with continued loss development and under reserving. Whatever good this
group of struggling companies produces in 2002 is being used to replenish past loss
reserve inadequacies.
Many old line markets are wounded and struggle in the current environment.
Examples:
Kemper Insurance - downgraded in late December 2002 by Best from A to B+.
Royal Sun Alliance - Restructuring, exiting numerous businesses, back to middle
market commercial, selling off key business to secure capital
1. The Economy- This is a concern of every industry and business, notjust insurance.
As the economy improves, the economic lift will fuel insurance market improvement.
2. Investment Income, Interest Rates, Investment Portfolio Contraction /
Expansion - Investment income and interest rates are key factors to what return
insurance companies get on invested claim reserves. When this and the Insurance
Market's investment portfolio improve, all will combine to fuel insurance market
improvement.
The Mood/Attitude of War, Terrorism, the fear of the Unknown - This factor
currently casts a huge negative attitude / mood on the insurance market and
business in general. When this factor clears itself up, it will drive a market change.
The new Terrorism act helps in some regards and hurts in other situations. There is
continued discussion on this issue between the Federal Act / Primary Domestic
Markets versus Re- Insurance. More needs to develop here, especially the reaction
of Worldwide Re-Insurers and the 2003 treaty re-insurance renewals.
Page 3
CITY OF MIAMI BEACH
How THE INSURANCE MARKET VIEWS YOUR EXPOSURES:
100% Highly Concentrated Property: Large Property Schedule, 100% South Florida
coastal risk. NO inland spread of risk, 100% of property is exposed to wind and
considered coastal .... almost waterfront property.
Loss Limit - Wind Limit is absolutely within the 100% loss limit. In a direct hit storm,
the $25,000,000 limit is a 100% LOSS. Markets expect to pay out the entire
$25,000,000 limit in a medium to large size wind storm. Therefore, their pricing must
reflect the exposure.
Probable Maximum Loss - Your Probable Maximum Loss (PML) will range from
$77,000,000 to $190,000,000 (or 20% to 50% of your Total Insurable Values). Your
renewal of $25,000,000 (or 7% of your TIV) is not enough coverage. We strongly urqe
the City to consider purchasing higher limits of wind coverage.
Hurricane Andrew -The $1,500,000 damage the City incurred from Hurricane Andrew
is considered peripheral damage and is NOT a benchmark 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.
High Frequency Losses- In addition to the high probable maximum loss, the City has
experienced a significant amount of fire 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 $137,577 Fire at South Pointe Facilities
06/08/99 $197,732 Combined Property/Boiler & Machinery
02/23/01 $75,000 Estimated Water Damage to Floor at Bass Museum
Page 4
CITY OF MIAMI BEACH
Exposure to Fire: The City must also consider their exposure to loss by a tire. 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:
~_ BUILDING NAME ADDRESS VALUE
1. Convention Center 1900 Convention Center Drive $156,909,512
2. Theater 1700 Washington Avenue $52,061,590
3. Police Station 1100 Washington Avenue $24,399,062
4. City Hall 1700 Convention Center Drive $15,585,690
RENEWAL NEGOTIATIONS:
Obtaining a comprehensive and competitively priced program of insurance in the
marketplace requires more than access to the market. Past experience and credibility with
markets are the foundation of a successful campaign for the City of Miami Beach. Complete
and accurate submissions, with detailed specifications, are essential. Arthur J. Gallagher &
Co. made a complete presentation to each company contacted.
MARKETING SUMMARY
QUOTED/ COMMENTS
CARRIER: DECLINED
Lexington Insurance Company Quoted Primary 10,000,000 @ $850,000
Allianz Insurance Company Quoted 100MM X $70 @ $95,000
Great American Excess & Surplus Lines Quoted Quoted Renewal Limit at Expiring Pricing
Lloyds of London Quoted $5MM p/o $15MM X$ $10MM
U.S. Fire Insurance Co. Quoted Quoted Renewal Limit at Expiring Pricing
Zurich Quoted $45MM X$ $20MM @ $90,000
Chubb Custom Declined Declined, No Florida Wind Capacity
Commonwealth Ins. Co. Declined Declined, No Florida Wind Capacity
Essex Ins. Co. Declined FL Wind Exposure
Page 5
CITY OF MIAMI BEACH
QUOTED/ COMMENTS
CARRIER: DECLINED
First State Management Group (Pacific) Declined Due to pricing and attachment
St. Paul Insurance Companies Declined Due to pricing and attachment
Nutmeg Insurance Company Quoted $5MM plo $15MM XS $10MM
Royal Specialty Underwriting, Inc. Declined Due to pricing
Genstar Quoted Quoted Renewal Limit at Expiring Pricing
Westchester Specialty Group Declined Not competitive
ARCH Quoted $5MM p/o $15MM XS $10MM
First Specialty Declined Due to Pricing
Coregis Declined Due to pricing and attachment point
LMG Property Declined Due to pricing
AXIS Declined Due to pricing and attachment point
Montpelier Declined Due to pricing
Goshawk Declined Due to pricing and attachment point
Glencoe Quoted $5MM plo $15MM XS $10MM
RLI Declined FL Wind exposure
ACE Bermuda Declined Due to pricing
AWAC Bermuda Declined Due to pricing
Of the 6 carriers on the existing program, 3 carriers would not offer a reduction, nor
would they change their attachment point. We therefore restructured the program and
went out to the marketplace to complete the program.
We were able to replace those carriers with new participants. The renewal offers
additional wind capacity at a reduction in price of $80,000 from the prior year.
Page 6
CITY OF MIAMI BEACH
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 $25,000,000 of Wind Coverage, in lieu of the $20,000,000 sublimit purchased
last year.
The $25,000,000 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.
The structure of the City's Property Renewal program follows:
Limits, Structures & Subscriptions
$170,000,000 Limit Per Occurrence - $25,000,O00Named Windstorm Sublime
Deductible for Named Windstorm is (subject to $15,000,000 Maximum and $1,000,000 Minimum)
Terrorism
Layers Company Limit Premium
Premium
3rd Excess Layer Allianz Insurance Company $100,000,000 plo $100,000,000 $95,000 $5,000
$100,000,000 per
occurrence
excess of
$70,000,000
2nd Excess Layer Zurich Insurance Company $45,000,000 p/o $45,000,000 $90,000 $10,000
$45,000,000 per
occurrenc~
excess of
$25,000,000
1~t Excess Layer Nutmeg Insurance Co. $5,000,000 plo $5,000,000 $550,000 $55,004
$15,000,000 per Arch Specialty Ins. Co. $5,000,000 plo $5,000,000
occurrence Lloyd's of London/Glencoe $5,000,000 plo $5,000,000
excess of
$10,000,000
Primary Layer Lexington Insurance Co. $10,000,000 plo $10,000,000 $850,000 $59,525
$10,000,000 per
occurrence
primary layer,
including Wind
Total Premium $1,585,000 $129,529
Plus Florida Surcharges and Inspections $209 $15
Total Cost $1,585,209 $129,544
$25,000,000 Sublimit for Named Wind
Flood and Earthquake are excluded.
Terrorism Coverage is subject to the Terrorism Risk Insurance Act 2002 - A brief
description of the coverage is provided in Section 5 of this proposal. Further
information is available upon request.
Page 7
OPTIONAL WIND LIMITS
CITY OF MIAMI BEACH
LIMIT PREMIUM
$5,000,000 Excess of $25,000,000 $150,000
$5,000,000 Excess of $30,000,000 $115,000
BOILER AND MACHINERY RENEWAL PROGRAM
All policy terms, conditions and exclusions will remain as expiring.
Boiler and Machinery Coverage has been also experiencing tightening, although not at
the pace we have seen in the property market. For accounts with good loss history,
carriers are looking for a rate increase between 10-15%.
Despite the large claim that was paid several years ago, Hartford Steam Boiler has
increased the premium only slightly. The renewal premium has increased from $20,417
to $23,368 a 14% increase.
SUMMARY:
We believe the program presented to the City is a very competitive program in today's
property market. We have been able to increase the wind sublimit from $20,000,000 to
$25,000,000 and still save the City $80,000. This is considered extremely aggressive, when
most accounts are seeing renewals anywhere from flat to 10% increase.
We continue to believe that the $25,000,000 Wind sublimit does not provide the City with
enough coverage and advise the City they should be purchasing more coverage. We
recommend the City purchase at least to their Probable Maximum Loss. We believe an
additional $50,000,000 (excess of $25,000,000) of wind coverage would cost approximately
$500,000 - $700,000, although we do not have quotations for this limit. We have however,
provided options for an additional $5,000,000 or $10,000,000 of wind coverage and strongly
recommend the City consider purchasing additional coverage. If you are interested, please
let us know.
Additionally, we recommend the City purchase coverage for Terrorism. We believe due to
the City's high profile, that your do in fact have an exposure to terrorism. The purchase of
such coverage is a necessity.
We thank you for allowing us to serve you over the past 7 years. We value the City's trust
and pledge our personal and corporate commitment to servicing your needs.
Page 8
CiTY OF MIAMI BEACH ~1~
COMMISSION ITEM SUMMARY
Condensed Title:
IResolution authorizing the purchase of Flood, All Risk Property Insurance (including windstorm) and Boiler
Machinery Insurance for an annual premium of $1,778,577.00 as proposed by Arthur J. Gallagher and Co.,
the City's Broker of Record.
Issue:
IProperty 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:
IApprove the purchase of Flood Insurance, All Risk Property Insurance (including windstorm) and Boiler
Machinery Insurance.
Advisory Board Recommendation:
INot Applicable
Financial Information:
Amount to be expended:
Source of A~ount A~unt APPt°~ed
*1,770,577.00 540.1792.000378 Property
;;; Insurance (Self-Insurance Fund)
' 2
3
Finance Dept. TO{~I
Sign-Offs:
AGENDA ITEM /~ 7 ~"
DATE
CITY OF MIAMI BEACH
CITY HALL 1700 CONVENTION CENTER DRIVE MIAMI BEACH, FLORIDA 33139
http:\~ci.rniarni-beach.fl, us
COMMISSION MEMORANDUM
TO:
FROM:
SUBJECT:
DATE: May 21, 2003
Mayor David Dermer and
Members of the City Commission
Jorge M. Gonzalez ~ ~~
City Manager
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, FORA COMBINED ANNUAL PREMIUM OF
$1,778,577.00 (NET OF BROKER COMMISSIONS), FOR A ONE-YEAR
PERIOD AS PROPOSED BY ARTHUR J. GALLAGHER & CO., THE
CITY'S BROKER OF RECORD.
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 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, i.e., 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 each
location within the City. The individual policies renew from July 2003 through December
2003 for one year. The total annual premium for 2001-02 was $170,000. We do not
anticipate any premium increase for 2002-03.
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, i.e., self-insure and rely on FEMA aid or purchase Windstorm coverage.
The property insurance marketplace has been severely impacted by catastrophic losses
over the past several years (industry models indicate that the Probable Maximum Loss
(PML) would range from $77,000,000 to $190,000,000 in the event of direct hit by a
category 2 or stronger hurricane to the City). Historically, the marketplace has reacted to
these catastrophic losses by increasing premium and coverage reductions (decreased
limits). Due to current economic conditions (decreased investment income, Iow interest
rates, decreased spending etc.), the marketplace now recognizes that it must hold property
insurance premiums and coverage reductions to the current level in order to continue to
provide an affordable product.
The City currently purchases All Risk property insurance (this is a Primary/Excess layered
program) with a Windstorm sublimit of $20,000,000 (maximum coverage offered) for an
annual premium of $1,670,000. Lexington Insurance Carrier is the Primary carrier in this
program with General Star Indemnity Co., U.S. Fire Insurance Co., Great American, Zurich
American Insurance Co., and Allianz Insurance Co., making up the excess layers.
The City's broker, Arthur J. Gallagher Co. (Gallagher), following our directions, has
identified a replacement program 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-six (26) contacted that is willing to provide a quote for primary
coverage. Excess layers are provided by Zurich Insurance Co., Nutmeg Insurance Co.,
Arch Specialty Ins. Co., Lloyd's of London/Glencoe, and Allianz Insurance Co. The new
program, which would be effective on June 1, 2003, provides for identical coverage with
the only change being an increase in the Windstorm sublimit from $20,000,000. to
$25,000,000 and a reduction in premium of $84,791.
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 2001-02 was $20,417. The new premium will be
$23,368. The additional premium of $2,951 is due to increased property/equipment values
and current market conditions.
The following table illustrates the current property program and renewal:
June 2002 Coverage
1. National Flood Insurance Program (NFIP)
Limits: $ 500,000
$ 500,000
Deductible: $ 5,000
Premium
2. Lexington Insurance Company
(Best's Rating A VIII)
(Primary Coverage)
Limits: $
Sublimits: $
Deductibles: $
Building
Contents
Per Location
$170,000.00
170,000,000 All Risk Peril
20,000,000 Named-Wind
100,000 All Risk Peril
5% Named-Wind
Premium: $1,670,000.00
3. Hartford Steam Boiler Inspection &
Insurance Co. (Best's Rating A+X)
Limits: $ 100,000,000
Deductibles $ 5,000
Premium $
TOTAL PREMIUM
20,417.00
$1,860,417.00
June 2003 Coverage
1. National Flood Insurance Program (NFIP)
Limits: $ 500,000
$ 500,000
Deductible: $ 5,000
Premium
2. Lexington Insurance Company
(Best's Rating A VIII)
(Primary Coverage)
Limits: $ 170,000,000 All Risk Peril
Sublimits: $ 25,000,000 Named-Wind
Deductibles: $ 100,000 All Risk Peril
5% Named-Wind
$1,585,209.00
Premium:
Building
Contents
Per Location
SI70,000.00
3. Hartford Steam Boiler Inspection &
Insurance Co. (Best's Rating A+X)
Limits: $ 100,000,000
Deductibles: $ 5,000
Premium: $
TOTAL PREMIUM
23,368.00
$1,778,577.00
In addition to the above, the renewal offers the following options: · Terrorism Coverage (subject to the Terrorism Risk Insurance Act 2002)
· Optional Wind Limits increasing the coverage limit up to $35,000,000.
· Possible additional Wind limits to $77,000,000.
Motivated by the events of September 11,2001 the Terrorism Risk Insurance Act of 2002
(TRIA) was enacted by the U.S. Congress in November 2002.
The TRIA provides a Federal backstop for terrorism losses through a program whereby the
Federal Government assumes most of the risk of terrorism attack while the insurance
industry provides mandated coverage through a retention and co-payment. The TRIA
further nullifies all conflicting terrorism exclusions and requires insurers to offer terrorism
coverage under similar terms as other property and casualty coverage as an option.
An "Act of Terrorism" is defined as:
· A violent act that is dangerous to human life, property, or infrastructure;
· To have resulted in damage within the United States, or damage to a U.S. air
carrier, U.S. flagged vessel, certain U.S. based vessels, or a U.S. Mission; and
· To have been committed by an individual or individuals acting on behalf of any
foreign person or foreign interest, as part of an effort to coerce the civilian
population of the U.S. or to influence the policy or affect the conduct of the U.S.
Government through coercion.
· An Act of Terrorism does not include an act committed in the course of war declared
by Congress or an act resulting in losses that do not exceed $5,000,000.
The following concerns/problems have been expressed regarding the definition: · The definition does not appear to encompass purely domestic terrorism (e.g.
Oklahoma). It is unclear how coverage would apply if an "Act of Terrorism" were to
be carried out by a U.S. cell of a foreign network.
· Losses resulting from an act of War are not covered.
· It is unclear whether a cyber attack would be covered.
· The Federal government solely decides on interpretation.
The annual additional premium for this coverage is $129,544. The policy deductible of
$100,000 would apply per occurrence. Coverage is capped at the policy limit of
$170,000,000.
The following Wind Limits are offered as an option:
Optional Limit Total Limit Premium
$5,000,000 Excess of $30,000,000 $150,000
$25,0OO,OOO
$5,000,000 Excess of $35,000,000 $115,000
$3O,OOO,OOO
: (est mated);;
The minimum PML (Probable Maximum Loss-Category 2 Hurricane) is $77,000,000. The
Maximum Wind Deductible is applied when calculating the additional layers required to
meet the minimum PML (Deductible/$15million + Renewal/$25million + Optional Layers/
$37million = $77million).
*Gallagher advises that if the City has interest in purchasing additional Wind coverage up
to $27,000,000 they will return to interested markets for a firm quote.
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 is required.
Historically, the City has experienced increases in All Risk policy premium with
minimal/reduced coverage. This renewal (with options) is the first positive renewal
presented to the City since Hurricane Andrew.
While the Administration would prefer that the City purchase all offered insurance including
options, sound fiscal responsibility dictates that a recommendation should be made based
on "cost versus risk". The Administration recommends the purchase of the Flood coverage
(NFIP), the All Risk policy without options (Wind sublimits of $25,000,000) and the
Boiler/Machinery. The renewal policies provide identical coverage to current except that
the All Risk policy provides increased windstorm limits from $20,000,000 to $25,000,000
with a decrease in annual premium of $81,840. Should the Mayor and Commission have
interest in obtaining any of the other optional insurance offered, the Administration
recommends the optional Wind Limits of $5,000,000 (this would provide a Wind sublimit of
$30,000,000) which is available for an additional $150,000 in annual premium. With regard
to the purchase of the other options offered, the Administration recommends that this
matter be revisited at the next policy renewal.
In summary, the Administration recommends purchase of the following coverage:
Policy Coverage Limits Annual
Premium
National Flood Insurance $500,000 Bldgl$500,000 Contents $ 170,000
Program (maximum coverage offered)
All Risk Property/Wind $170,000,000 All Risk (Wind $1,585,209
(Includes $5,000,000 additional sublimit of
coverage) $25,000,00001excludes Terrorism
coverage)
Boiler/Machinery $100,000 $ 23,368
Total Annual Premium $1,778,577
Attachment
F:~$all~risk~cliff~P-INS03.doc