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2001-24392 RESO RESOLUTION NO. 2001-24392 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 BOILERlMACIllNERY INSURANCE FOR CITY BUILDINGS AND CONTENTS, FOR A COMBINED ANNUAL PREMIUM OF $1,237,158.00 (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 windstorm) with Lexington Insurance Company, for a total annual premium of $1,050,000.00; and BoilerlMachinery insurance with Hartford Steam Boiler, for a total annual premium of $17,158.00; for a combined annual premium of $1,237,158.00; 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 windstorm), and BoilerlMachinery insurance for all City-owned buildings and contents, for a combined annual premium of $1,237,158.00 for a one-year period as proposed by Arthur J. Gallagher & Co., the City's broker of record. PASSED AND ADOPTED this 16th day of May 11ft! Mayor ~~f~ City Clerk , APPROVED AS TO FORM. LANGUAGE . FOR EXECUTION AJJ 1IJifJJ"L.::__~- v-Oj ~.- PROPERTY IBolLER & MACHINERY RENEWAL PROPOSAL FOR CITY OF MIAMI BEACH PRESENTED BY: -~ ~._.~ I. ~" ~~L.LAG"'''~ ARTHUR J. GALLAGHER & CO. - MIAMI NATIONAL PUBLIC ENTITY AND SCHOLASTIC DIVISION JORI L. VAN DER VOORT, ARM ACCOUNT EXECUTIVE GREGORY S. BUTTERFIELD, CPCtt. ARM AREA PRESIDENT LISETTE M. de DIEGO AREA ASSISTANT VICE PRESIDENT April 24, 2001 IMPORTANT: This proposal is an outline of the coverages proposed by the insurers, based on the information provided by your 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 N.W. 41st Street - Suite 200 - Miami. FL 33166 Phone: 305-592.6080 Fu: 305-5924049 e. CITY OF MIAMI BEACH TABLE OF CONTENTS EXECUTIVE SUMMARY 1 PROPERTY PROGRAM 2 BOILER & MACHINERY PROGRAM 3 BEST RATINGS & AJG DISCLOSURES 4 e. CITY OF MIAMI BEACH EXECUTIVE SUMMARY 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 $2 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 Scheaules than any other broker . A long list of well known satisfied clients serve as our best credentials . 51 Florida Cities . 20 Florida County Governments . 62 Florida County School Systems · 28 Florida Community Colleges .. CITY OF MIAMI BEACH EXECUTIVE SUMMARV SOUTH FLORIDA PROPERTY MARKET STATUS (As OF APRIL 2001): ~ The property insurance market has turned and no account is immune from its effect. Many carriers are exiting the Florida market or offering small layers at gready increased prices. At the end of this section, please review the 2001 Market ReportH from the January 2001 Business Insurance. Each article strongly indicating the "hardening property market". :.- Underwriting results show that the years of ever deteriorating underwriting results finally reached a breaking point. Insurers and Reinsurers worldwide have now adopted far more disciplined and stringent approaches to underwriting. ~ This change in the insurance and reinsurance market is not prompted by reduced capital as was the case in the 80's and early 90's. Rather it is based on the fact that existing rates can no longer be justified by insurers and reinsurers who seek to operate in a reasonable and profitable manner. Thus, underwriters are not compelled to write any new business that they deem unattractive. They reserve their capacity for those accounts that are willing to pay "their rate" to secure coverage. ~ Windstorm continues to preoccupy 95-98% of the marketplaces underwriting attention and pricing. ;, All carriers have greatly reduced appetite for new business. Many carriers have exited coastal exposure business particularly South Florida. ~ Renewal carriers are all looking for premium increases ranging from 20-30%, 40- 60%, and even 100,200 and 300% increases depending on the "aaaressiveness" and "bottomed out" expiring program. ~ Our extensive "property based" public entity/educational client list is attached. All of these clients are feeling the impact of the rapidly changing Florida property market. Particularly, the large, highly concentrated South Florida accounts. ;, Anyone who purchases homeowners insurance recognizes the oricino and availabilitv problems associated with the South Florida property market. .' CITY OF MIAMI BEACH How THE INSURANCE MARKET VIEWS YOUR EXPOSURES: 1. 100% Hiahlv Concentrated Prooertv: 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. 2. Loss Limit - Wind Limit is absolutelv within the 100% loss limit. In a direct hit storm, the $25,000,000 limit is a 100% LOSS. Markets expect to payout the entire $25.000,000 limit in a medium to large size wind storm. Therefore, their pricing must reflect the exposure. 3. Probable Maximum Loss - Your Probable Maximum Loss (PMLI will range from $85,000,000 to $170,000,000 (or 25% to 50% of your Total Insurable Values). Currently, you purchase wind coverage up to $25,000,000 (or 7% of your TIV). We stronalli urae the City to consider purchasing higher limits of wind coverage. .4. 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. A/I carriers expect the City to sustain substantial damage within your PML in a medium to large windstorm. 5. Hiah Freauencv 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 01117/95 $227,731 Water Damage at Convention Center 09/1 995 $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 .. CITY OF MIAMI BEACH RENEWAL NEGOTIATIONS: We recognized in early 2001 that the market was extremely difficult. We knew that renewing your program with the existing carriers and at price less than a 20% rate increase would not be possible. 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 CARRIER: QUOTED/ COMMENTS DECLINED Lexington Insurance Company Quoted Primary $5 Million $2.5 MM part of $5MM XS $10 MM, Allianz Underwriters Ins. Company Quoted $2.5 MM part of $5MM XS $15MM; Limits XS $20 MM (Excl. Wind) Great Americal Excess & Surplus Lines Quoted $2.5 MM part of $5MM XS $15MM L10yds of London Quoted $5 Million XS $5 Million U.S. Fire Insurance Co. Quoted $2.5 MM part of $5MM XS $10 MM American Underwriting Managers, Inc Declined Due to Capacity and Pricing (Fulcrum). Chubb Custom Declined Can not increase PML in Dade County Commonwealth Ins. Co. Declined Not interested in NEW S.Florida Wind Business - Essex Ins. Co. Declined Due to Capacity and Pricing First State Management Group (Pacific) Declined Not interested in exposure and attachment point AXA Declined Not interested in pricing or attachment St. Paul Insurance Companies Declined Due to Aggregate/Pricing Hartford Specialty Insurance Company Declined Not interested in exposure and attachment point Programme Underwriters (TIG Declined Not intested in attaching at less than Specialty) $70 Million .. CARRIER: QUOTED! COMMENTS DECLINED RLI Insurance Company Declined Due to Aggregate/Pricing Royal Specialty Underwriting, Inc. Declined Not interested in attaching at less than $25 Million Genstar Declined Due to Aggregate/Pricing Gulf Ins. Declined Not interested in attaching at less than $70-$90 Million Westchester Specialty Group Declined Due to Aggregate/Pricing Wausau Declined Due to Aggregate/Pricing ACE USA Declined Capacity not available Coregis Declined Due to Aggregate/Pricing Zurich Declined Can not participate due to coastal exposure CITY OF MIAMI BEACH ~ Of the 23 carriers that were approached, only 5 carriers were willing to participate in the program. ~ The remaining 17 carriers declined the submission due to requested pricing, limited capacity issues and the coastal exposure! A MACRO VIEW OF YOUR PRICING AND EXPOSURE: ~ The City's Total Insurable Values are $360,947,100 (subject to a $25,000,000 Wind Sublimitl. This large property schedule is viewed by underwriters as highly concentrated, No spread of risk....almost waterfront property in Dade County, Florida. Wind Limit is considered a 100% LOSS!! ~ Pricing for your account can be broken down to an average .Price per Million" basis. This means that for every $1 Million of insurable values, the City is charged 12.900. .0 CITY OF MIAMI BEACH PROPERTY RENEWAL PROGRAM: The final cost indication to renew your program with a $25,000,000 Named Windstorm Sublimit is $1.050.000. The layered program is not completely filled as we are negotiating with various carriers to participate in your program. We will continue to work on this layer, unless you direct us otherwise. As of this date, the renewal program consists of a $20,000,000 Named Windstorm Sublimit. An outline of the terms and conditions of your program follows: )> Total Limit of Insurance is $360.947.1000 subject to policy terms, conditions, exclusions and sublimits. ~ $20,000,000 Named Windstorm (less deductible). Any non-named windstorm will be covered up to the policy limit . ~ Named. Windstorm deductible is 2%of damaged locations(subject to a maximum of $5,000,000 and a minimum of $1,000,0001. Please note the minimum has increased from $250,000 to $1,000,000. The maximum will remain at $5,000,000. This is considered quite favorable as underwriters initially wanted to remove the maximum of $5,000,000. Without the maximum, your deductible could be as much as $7,200,000. ,. All other perils deductible, including non-named windstorm has increased from $50,000 to $100.000. ,. Lexington Insurance Co. will provide primary $5,000,000 layer. Last year Allianz Insurance Company provided this layer. ~ Flood will continue to be excluded. ~ Your Total Insured Values are $360,947,100. This is a 5% increase from last year. , The Earthquake Sublimit Limit has been reduced from $5,000,000 per occurrence and annual aggregate to $1,000,000 per occurrence and annual aggregate. )> New Acquired Property Sublimit has been reduced from $5,000,000 per occurrence/SO day reporting to $1,000,000 per occurrence/SO day reporting. , Builders Risk Sublimit has been reduced from $$5,000,000 per occurrence/SO day reporting to $1,000,000 per occurrence/SO day reporting. .. CITY OF MIAMI BEACH ~ Ordinance or Law Sublimit has been reduced from $5,000,000 per occurrence- Each Coverage to $1,000,000 per occurrence-Each Coverage.. ~ Transit Sublimit has been reduced from $250,000 per occurrence to $100,000 per occurrence. ~ Rental Value Sublimit has been reduced from $250,000 per occurrence to $1 OO~OOO per occurrence. ~ Debris Removal Sublimit has been reduced from $5,000,000 per occurrence to $1,000,000. ~ Based on the City's exposure to severe windstorm losses, The City of Miami Beach shou!d stronalv consider purchasing more wind coverage, up to your PML. . ~ Premium: $960.000 ANALYSIS OF ALTERNATIVES: As mentioned previously, the City's Probable Maximum Loss (PMLI is in excess of $85,000,000. This means that in a Category 3, 4 or 5 hurricane, insurance companies expect to pay in excess of $85,000,000. 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. While we recommend the City to purchase more wind coverage, we recognize you have budget parameters to adhere to. Therefore, we are providing the City with sevaral options to reduce their Wind Coverage limit. Those limits are as follows: WIND OPTIONS WIND SUBlIMIT LIMIT OF LiABlILITY PREMIUM $25,000,000 $360,947,100 $1,050,000 $20,000,000 $360,947,100 $960,000 $15,000,000 $360,947,100 $885,000 . CITY OF MIAMI BEACH BOILER AND MACHINERY RENEWAL PROGRAM ~ All policy terms, conditions and exclusions will remain as expiring except for the followins; . Computer Equipment sublimit has been increased from $500,000 to $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 I.oss history, carriers are looking for a rate increase between 5-10%. ~ Despite the large claim that was paid, Hartford Steam Boiler has increased the premium slightly. The renewal premium has increased from $15,595 to $17.158. . CITY OF MIAMI BEACH BOilER AND MACHINERY RENEWAL PROGRAM ~ All policy terms, conditions and exclusions will remain as expiring except for the fonowi~ . Computer Equipment sublimit has been increased from $500,000 to $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 I.oss history, carriers are looking for a rate increase between 5-10%. ~ Despite the large claim that was paid, Hartford Steam Boiler has increased the premium slightly. The renewal premium has increased from $15,595 to $17.158. CITY OF MIAMI BEACH CITY HALL 1700 CONVENTION CENTER DRIVE MIAMI BEACH, FLORIDA 33139 http:\\ci.miami-beach.f1.us COMMISSION MEMORANDUM NO. 3;;d-OI TO: Mayor Neisen O. Kasdin and Members of the City Commission DATE: May 16, 2001 FROM: Jorge M. Gonzalez City Manager o~ 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, FOR A COMBINED ANNUAL PREMIUM OF $1,237,158.00 (NET OF BROKER COMMISSIONS), FOR A ONE-YEAR PERIOD AS PROPOSED BY ARTHUR J. GALLAGHER & CO., THE CITY'S BROKER OF RECORD. ADMINISTRA nON RECOMMENDATION: Adopt the resolution. FUNDING: Funds are available from the SelfInsurance 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 BoilerlMachinery (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 governed by the Stafford Act. 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 of its locations. The policies renew from July 200 I through December 2001 for one year. The total annual premium for 1999-00 was $170,000. We do not anticipate any premium increase for 2000-01. AGENDA ITEM J~ 1 k. DATE ,lJ-lt-o I 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. During 1996 and 1997, the premium quoted to purchase an All Risk policy which included a sublimit of $20,000,000 for Windstorm, was in excess of $1,000,000. The City felt that this premium was not reasonable and chose to purchase an All Risk policy (which excluded Windstorm) and self-insure for loss against Windstorm. The annual premium for the All Risk policy (excluding Windstorm) during 1996 and 1997 was approximately $100,000. In 1998, 1999, and 2000, the market improved, and the City was able to purchase an All Risk property policy, which included a Windstorm sublimit of $25,000,000 with a current premium of$500,486.00. 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 (please refer to the attached renewal proposal provided by Arthur J. Gallagher and Co.-Miami). The City has received notice of non-renewal from Allianz, the City's current All Risk insurer. Our broker, Arthur J. Gallagher Co., 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 was willing to provide a quote for primary coverage. The new policy, which would be effective on June 1, 2001, provides for identical coverage with the only changes being an increase in property values, the deductible, and premium rate. The All Risk coverage limit (excluding Windstorm) is $360,947,100 (based on current increased propertylbuilding values) and has a per occurrence deductible of$IOO,OOO. The All Risk coverage is offered with the following Windstorm coverage options. Wind Options Wind Sublimit Limit of Liability Total Premium $25,000,000 $360,947,100 $1,050000 $20,000,000 $360,947,100 $960,000 $15,000,000 $360,947,100 $885,000 . The Windstorm sublimit provides for a 2% deductible subject to a $1,000,000 minimum/$5,000,000 maximum per occurrence. We have reviewed the premium increase with Arthur 1. Gallagher and Co., the City's Broker, specifically looking at modifYing deductibles (self insuring additional liability) in order to obtain a more desirable premium. Arthur 1. Gallagher and Co. has advised that 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 (Miami-Dade County, the City of Miami, Dade County School Board, and the City of Hialeah) and have determined that they are experiencing similar premium increases and coverage issues. The third coverage, BoilerlMachinery provides coverage for property built to operate under a vacuum or pressure, or used for the generation, transmission or utilization of energy (pumps, AC. 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 1999-00 was $15,595. The new premium will be $17,158. The additional premium of$I,559 is due to increased property values and current market conditions. The Administration recommends that the City purchase Flood, All Risk (with a $25,000,000 Windstorm sublimit), and BoilerlMachinery 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 2000 Covera2e June 2001 Covera2e 1. National Flood Insurance Program (NFIP) Limits: $ 500,000 Building $ 500,000 Building Contents Deductible: $ 5,000 Per Location Premium: $170,000.00 2. Allianz Insurance Company (Best's Rating A VIII) Limits: $360,947,100 All Risk including Non- Named Windstorm Sublimits: $ 25,000,000 Named Windstorm (Hurricane) Deductibles: $ 100,000 All Risk 2% Wind ( Hurricane) Premium: $500,486.00 1. National Flood Insurance Program (NFIP) Limits: $ 500,000 Building $ 500,000 Building Contents Deductible: $ 5,000 Per Location Premium: $170,000.00 2. Lexingoton Insurance Company (Best's Rating A VIII) Limits: $360,947,100 All Risk including Non- Named Windstorm Sublimits: $ 25,000,000 Named Windstorm (Hurricane) Deductibles: $ 100,000 All Risk 2% Wind (Hurricane) Premium: $1,050,000.00 3. Hartford Steam Boiler Inspection & Insurance Co. (Best's 3. Hartford Steam Boiler Inspection & Insurance Co. Rating A+ X) (Best's Rating A+ X) Limits: $100,000,000 Equipment Breakdown Limits: $100,000,000 Equipment Breakdown Deductible: $ 5,000 Deductible: $ 5,000 Premium: $ 15,595.00 Premium: $ 17,158.00 TOTAL PREMIUM: $686.081.00 TOTAL PREMIUM: $1.237.158.00 JMG~Dw:cff Attachment f:\$al 'sk\clill\property.insOlb.wpd