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LTC 432-2019 2019-20 Insurance ProgramMIAMIBEACH OFFICE OF THE CITY MANAGER NO. LTC# 432 -2019 LETTER TO COMMISSION TO: Mayor Dan Gelber and Members of FROM: Jimmy L. Morales, City Manager DATE: August 1, 2019 SUBJECT: 2019 -20 Insurance Program he City Co ' ission The Human Resources - Risk Management division is committed to managing a comprehensive insurance program (including self- insurance) designed to protect the assets of the City and provide benefits to its employees, residents and the public with the primary emphasis on safety, quality and cost. The City uses Arthur J. Gallagher ( "AJG ") as the broker of record for risk management consultation and insurance placement. The City remains self- insured for third -party General and Automobile Liability, Police Liability, Errors & Omission (Professional Liability), and Workers' Compensation. We use our broker of record to purchase the following insurance programs: (1) National Flood Insurance Program ( "NFIP), (2) All Risk (including windstorm), (3) Parametric Hurricane, (4) Boiler /Machinery (equipment breakdown), (5) Fine Arts (Bass Museum and Art in Public Places) and (6) Terrorism & Active Shooter, (7) TULIP (Tenant User Liability Insurance Program), (8) Crime, (9) Storage Tank Liability, (10) Cyber Liability, (11) Excess Workers' Compensation. Most of the policies renewed on June 1, 2019. Below is a summary of each insurance program: Flood Insurance Flood coverage is excluded under the City's Property Insurance Program. The City maintains individual flood insurance policies through the NFIP on most of its eligible properties. The FEMA will not provide assistance for a flood loss in the Special Flood Hazard Areas that could have been covered under the NFIP. The maximum policy limits are $500,000 for buildings and $500,000 for contents. The estimated annual budget for flood insurance is $400,000. All Risk Property Insurance In order to comply with FEMA's eligibility requirements for Public Assistance, the City strives to purchase Windstorm coverage that is reasonably available in the current insurance market. In compliance with the Stafford Act, we have forwarded our request to the Florida Division of Emergency Management to request certification of the Letter to Commission Property Insurance Renewal 2019 -20 Page 2 reasonableness of our program from the Insurance Commissioner. Each year AJG analyzes the City's property schedule (inclusive of the Convention Center) in terms of windstorm exposure using RMS (a trademark of Risk Management Solutions). This modeling software represents one of the current best practices in projecting probability of windstorm losses and is vital to carriers in obtaining appropriate pricing of property insurance in Florida. As indicated on the Probable Maximum Loss ( "PML ") chart below, in the event of a 250 -year storm, RMS projects the City's PML for properties covered under the City's property insurance program to be approximately $192 million - $221 million. Should the City experience a catastrophic event as shown in the modeling, all the City's Named Windstorm limit would be exhausted. Critical Return Prob. Period RMS 2019 0.01% 10,000 Ground Up $1,197,980,854 0.10% 1,000 0.20% 500 0.40% 250 1.00% 100 AAL Gross Loss $492,317,768 $336,592,487 $221,268,795 $112,308,444 $4,601,335 $1,132,534,295 $445,975,441 $300,115,335 $191,566,336 $89,519,796 $3,290,147 The trend of catastrophic events across the U.S. has caused rate increases in the insurance marketplace. According to NOAA (National Oceanic & Atmospheric Administration) Hurricanes Harvey, Maria and Irma were among the U.S. top costliest events with more than $265 billion in reported damages. Most of our insurance policy renewals experienced an increase in rates, partly due to the market conditions, and because of the renovated Convention Center being added to our property insurance program. During the June 2015 -2016 policy period, the City removed the Convention Center (MBCC) off the citywide All -Risk property insurance program to a Builder's Risk policy while major renovations were underway. The MBCC was expected to be substantially completed in August 2018, yet as of June 2019 it was not. Due to multiple delays, extensions and claims under the builders risk policy, one of the carriers was unwilling to offer any further extentions of the policy past June 1, 2019. Therefore, our broker looked at several options to get us the best available coverage and pricing. A replacement builders risk policy is not cost effective due to the significant values at risk and the exposure this late into the project. While we originally intended to have MBCC on its' own property program with dedicated Iimts, it was not possible because the building is not at substantial completion. Therefore the most cost effective option was to add the MBCC to the City's Master Property Program. The MBCC more than doubles the total insured value ( "TIV ") of the City's master property program, which is now at almost $1.3 billion dollars. During this renewal period, the City explored multiple options to address our wind exposures, especially due to the increase in TIV from the MBCC. We explored the option Letter to Commission Property Insurance Renewal 2019 -20 Page 3 of increasing our wind storm limit excess of $30 million as well as a parametric product. The parametric policy provides coverage for both wind speed qualifying events as well as Cat -in -a- circle events. This provides coverage for underinsured and uninsured economic losses, as opposed to the additional wind storm limit that only responds to damage by a Named Windstorm event. The City chose a Hurricane PM policy that utilizes two (2) anemometer stations named in the policy. The wind speed qualifying event coverage is triggered based on the recorded wind speed, as specified in the policy, (see below chart) at a hurricane - hardened anemometer, owned and operated by Weatherflow Inc., during a National Weather Service Named Storm. Once coverage is triggered, any economic loss is eligible for coverage, up to the limit purchased. The benefits of the parametric policy are that it provides coverage for losses excluded under traditional property policies, has rapid claims payout (with no distinction between wind and flood losses), and parametric insurance uses a wind speed threshold deductible wherein once the wind speed is met, losses are covered up to the limit triggered. Property Locations ra _� sue'. I•. ■ • Harcor Istantls mr Beach Legend .. iC EAR- "'IF n-,,.. i B8., I. .;1., • Mlemx 0,3,1 ipp NEW PARADIGM UNDERWRITERS cry , ^r!1i Letter to Commission Property Insurance Renewal 2019 -20 Page 4 Premium Indication STRUCTURE: 96 -129 MPH Escalating or CAT -IN -A- CIRCLE WINDSPEED QUALIFYING EVENT: Coverage is Triggered if the 60- Second Sustained Wind Speed meets or exceeds the MPH Thresholds, at any anemometer. CAT -IN -A- CIRCLE QUALIFYING EVENT: Coverage is Triggered if an Event Track Point falls on or within the boundaries of the Circle, or intersects the Circle, as reported by the National Hurricane Center's Public Advisory Reports; at any of the three circles. QUALIFYING EVENT MAXIMUM PAYOUT: The highest Payout of either the Wind Trigger or the Cat -In -A- Circle Triggers. The Cumulative Payouts are not additive within the same Named Storm, however, the payouts can be added over multiple Named Storms, not to exceed the Limit during the Contract Period. Rates are INDICATIVE, non- binding, and subject to change. 20,000,000 25.000,000 30.000,000 35.000,000 5.15 ° /o 5.15% 5.15% 5.15 °o $ 1,030,434 $ 1,288,033 $ 1,545,631 $ 1,803,237 Indications include applicable taxes and fees Anemometer Latitude Longitude Circle Radius BBH MSP 25.76690 25.8228 - 80.14534 - 80.1783 10 Miles Wind S a eed Pa out 96 1 1.0% 111 18.0% 97 1 1.5% 112 20.0% 98 1 2.0% 113 22.0% 99 2.5% 114 24.0% 100 1 3.0% 115 26.0% 101 1 4.0% 116 28.0% 1021 5.0% 117 30.0% 103 1 6.0% 118 32.0% 1041 7.0% 119 34.0% 105 j 8.0% 120 36.0% 106 ; 9.0% 121 38.0% 107 j 10.0% 122 30.0% 1081 12.0% 123 40.0% 109 1 14.0% 124 50.0% 1101 16.0% 125 60.0% 126 1 70.0% 127 1 80.0% 128 1 90.0% 129 1 100.0% Hurricane 10 Mile Intensity Radius Category '1 0.000o Category 2 0.00 ° -0 Category 3 25.00 °o Category 4 60.00 °0 Catewo 5100.0000 lip NEW PARADIGM UNDERWRITERS • Letter to Commission Property Insurance Renewal 2019 -20 Page 5 City of Miami Beach Property Insurance Coverage Comparison 2018 -2019 and 2019 -2020 2018 -2019 $594.912,956 2019 -2020 $1,284,912,956 Total Insured Values Loss Limit $150,000,000 $150,000,000 $150M xs $150M Convention Center only Named Windstorm Sublimit $30,000,000 $30,000,000 Deductible — Named Windstorm (percentage applies to values reported on statement of values 6.5% of the Total Insured Value at each location involved, subject to a minimum of $1,000,000 any one occurrence 6.5% of the Total Insured Value at each location involved, subject to a minimum of $1,000,000 any one occurrence Deductible — all other perils $100,000 $100,000 Valuation Real and Personal Property Replacement Cost Replacement Cost Time Element Actual Loss Sustained Business Income Actual Loss Sustained Business Income Parametric Supplemental Hurricane & Strom Surge Coverage Limit Not Purchased $20,000,000 Letter to Commission Property Insurance Renewal 2019 -20 Page 6 Property insurance premium comparison at June 1, 2019 renewal: Boiler and Machinery (Equipment Breakdown) Boiler and machinery insurance, also called equipment breakdown insurance, covers the cost of repairing or replacing the damaged equipment and business losses incurred from the equipment not functioning. The policy limit is $250 million, with a $10,000 deductible. Fine Arts This policy provides coverage for art that is displayed in various locations throughout the City with total insurable values over $30 million and a $5,000 deductible for each Toss but increased to $25,000 each loss in respect to Windstorm. (The policy contains amended deductibles for certain pieces of art/locations). Underwriters at Lloyd's continuing to offer a very favorable program. Terrorism Coverage The Terrorism coverage includes an act or series of acts, involving the use of force or violence, of any person or group of persons, whether acting alone or on behalf of or in 2018 -2019 2019 -2020 Coverage 2019 Carriers Premium Premium Primary Property - Lexington Insurance $ 1,705,000 $ 2,591,928 $150,000,000 All Perils Company, National Fire & Marine Insurance Co., Everest, Certain Underwriters at Lloyds General Security Indemnity Co. of AZ United Specialty Insurance Co Excess Property - Westchester Surplus Lines $ 224,000 $ 425,000 $5,000,000 xs $20,000,000 Named Windstorm Onl Excess Property - Ironshore $ 176,000 $ 355,000 $5,000,000 xs $25,000,000 Named Windstorm Onl Excess Property - Axis Surplus Insurance Co. Not Purchased $ 225,000 $150,000,000 xs Landmark American $150,000,000 All Perils Insurance Co. Convention Center Only Parametric Hurricane Fair American Select Ins. Co Not Purchased $ 1,030,434 First Specialty Ins. Co. Subtotal for the Property Program $ 2,105,000 $ 4,627,310 EMPA $ 24 $ 44 Fees $ 0 $ 2,535 Total After Fees $ 2,105,024 $ 4,629,941 Boiler and Machinery (Equipment Breakdown) Boiler and machinery insurance, also called equipment breakdown insurance, covers the cost of repairing or replacing the damaged equipment and business losses incurred from the equipment not functioning. The policy limit is $250 million, with a $10,000 deductible. Fine Arts This policy provides coverage for art that is displayed in various locations throughout the City with total insurable values over $30 million and a $5,000 deductible for each Toss but increased to $25,000 each loss in respect to Windstorm. (The policy contains amended deductibles for certain pieces of art/locations). Underwriters at Lloyd's continuing to offer a very favorable program. Terrorism Coverage The Terrorism coverage includes an act or series of acts, involving the use of force or violence, of any person or group of persons, whether acting alone or on behalf of or in Letter to Commission Property Insurance Renewal 2019 -20 Page 7 connection with any organization, committed for political, religious, ideological or similar purposes, including the intention to influence any government and /or to put the public or any section of the public, in fear. In addition, the carrier, Ironshore, offers an add -on "Active Shooter" coverage which indemnifies the City for business interruption and extra expenses incurred should the City experience an Active Shooter event. Extra expenses covered under this policy can include, but is not restricted to public relations consultancy costs, relocation expenses, counselling and /or psychiatric care costs, medical expenses, alternate employee recruitment costs, and temporary security costs. For the purpose of this Insurance, an Active Shooter Event means an individual or group of people actively engaged in killing or attempting to kill people in a confined and /or populated area at an insured location detailed on the Schedule of Values held by underwriters. The limit is $100 million for Property Damage and $1 million for Active Shooter. TULIP Program The TULIP (Tenant Users Liability Insurance Policy) Program provides low cost general liability insurance to "third party" users of City facilities, i.e. Parks, Theaters, and the Convention Center. The TULIP coverage protects both the facility user and the City against claims by individuals who may be injured as a result of attending an event. While access to the TULIP Program is offered through the City, premiums are paid directly to the company by the facility users requesting coverage and there is no cost to the City. Crime This policy provides coverage for the most common threats to organizations, including losses due to employee dishonesty at all city locations, forgery or alteration, money order and counterfeit paper currency, funds on premises and in transit, computer fraud and theft (including unintentional acts committed by an employee, often in the form of spam or impersonation email asking for a wire transfer), social engineering and funds transfer fraud. The limit of liability is $1,000,000, except for social engineering at $500,000. The self- insured retention is $50,000. Storage Tank Liability Coverage is in place for Storage Tank third -party liability, Corrective Action and Clean -Up Costs for twenty -four pump stations throughout the City, with policy limits of $1,000,000 each incident and $2,000,000 aggregate. Coverage also includes Certified Acts of Terrorism Coverage under TRIA 2002. Letter to Commission Property Insurance Renewal 2019 -20 Page 8 Cyber Liability Cyber liability is an emerging issue that could financially impact an entity, public or private, due to the many federally mandated requirements, should an entity have a data breach. Some of the largest costs associated with a data breach are forensics, legal, notification to each affected individual, managing public relations, fines and penalties. Since the number of cyber- attacks has increased in recent years, the City purchased its first Cyber Liability policy in December 2016. Coverage is provided by Chubb — Ace American Insurance Company and address evolving regulatory, legal and cybersecurity standards. Included are Loss Mitigation Services: access to the tools and resources needed to address and gauge key areas of cyber security risks before an event occurs; and Incident Response Services — a diverse team of experts in the legal, computer forensics, notification, call center, public relations, fraud consultation, credit monitoring, and identity restoration service to help limit exposure to a loss when an event occurs. For first -party coverage, the limit of liability is $1,000,000 each incident /aggregate for Cyber Incident Response, Business Interruption Loss and Extra Expenses, Contingent Business Interruption Loss and Extra Expenses, Digital Data Recovery, and Network Extortion. For third -party liability coverage, the limit of liability is $1,000,000 each claim /aggregate for Cyber, Privacy and Network Security Liability (payment card Toss, regulatory proceeding), and Electronic, Social and Printed Media Liability. At the December 2019 renewal, the City will consider increasing the limit of liability. Workers' Compensation and Excess Workers' Compensation The City is self- insured for Workers' Compensation coverage. We hire a third -party administrator to handle all claims in accordance with Florida Statutes, Chapter 440. During 1986 — 1997, the City continuously purchased Excess Workers' Compensation coverage with self- insured retentions ranging from $250,000 to $500,000, in which those policies continue to respond to claims that occurred during that period. In those years' insurers were paying (or expected to pay) claims and expenses with little or no investment income to offset the losses. Some insurers significantly reduced their writings or left the market entirely. Since these catastrophic claims may last for decades into the future, for those insurers who did continue to offer this coverage, there was great uncertainty as to the adequacy of retention levels and pricing. This affected all insureds, regardless of their individual loss experience. After stabilization of the market, the City considered the purchase of this coverage again, especially due to the rising cost in catastrophic claims, such as public safety presumptive claims, and new legislation that adds additional benefits for first responders. Coverage has been in place since December 2016. The self- insured retention is $1,000,000 per occurrence.