Memorandum

City of Lawrence

Administrative Service Department

 

TO:

Mike Wildgen – City Manager

 

FROM:

Jennifer Harvey – Risk Manager

 

CC:

Dave Corliss, Assistant City Manager/Director of Legal Services

Debbie Van Saun – Assistant City Manager

Frank S. Reeb – Administrative Services Director, City Clerk

Date:

June 22, 2005

 

RE:

July 1, 2005 Insurance Policy Renewals

Building/Property Insurance

Fire & Medical Auto/Professional Liability Insurance

 

 

 

Introduction

 

On July 1, 2005 at 12:01am, insurance policies for City Buildings/Property and Fire/Medical Auto and Professional liability coverage will expire.  This memo is written to advise you of the recommended coverage options and seek your approval to bind coverage in advance of the expiration.  I am pleased to recommend binding Building/Property coverage with Affiliated FM and Fire/Medical Auto/ Professional Liability/Portable Equipment coverage with Emergency Services Insurance Program (ESIP) for the insurance period of 7/1/05 to 7/1/06. 

 

Building/Property

 

For the past three years, the City’s Building/Property insurance coverage has been provided by St. Paul-Travelers as brokered by Charlton Manley Insurance.  You may recall that in the year following the attacks of 9/11, all insurance markets hardened dramatically, and we were faced with significant premium increases.  We were able to lessen the impact of premium increases by establishing a relationship with St. Paul-Travelers (Travelers at the time) and in addition increasing our deductible from $10,000 to $25,000. 

 

Last year at this time we were seeing stabilization of the markets resulting in flat or no increase renewals.  Approaching our renewal on 7/1/05 we anticipated receiving a decrease.  In the last year or so, insurance markets have shown signs of softening, and we have maintained an excellent loss history.  As hoped, St. Paul-Travelers presented a renewal decrease of 9% on last year’s insured property values.   With adjustment of insured property values by 4% for inflation, the estimated annual premium is $136,162, which is $6,044 less than last year’s premium of $142,206.

 

At the same time the brokerage firm of Arthur J. Gallagher approached us with a very attractive option that would in fact represent an even more significant decrease in premium while providing coverage enhancements not previously included by St. Paul-Travelers.  Affiliated FM, considered a premiere insurer, presented coverage at the same deductible level of $25,000, with the addition of earthquake, flood, and boiler/machinery coverage (standard exclusions, variant deductibles, and sublimits) in one policy for an estimated premium of $118,500.  That represents a 20% decrease from our 2004-2005 premium of $142,206 and a 15% decrease from St. Paul-Travelers 2005-2006 renewal proposal estimated premium of $136,162.

Text Box: Table 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additionally, premium savings will come from the cancellation of our current separate boiler/machinery policy with Cincinnati Insurance that has an annual premium of $4,088.  The coverage with Cincinnati Insurance has an overall policy limit of $1,000,000 with a $1,500 deductible.  The coverage provided by Affiliated FM is subject to a limit of $197,000,000 with a $25,000 deduction.  To my knowledge, the City has never filed a loss claim against this boiler/machinery coverage.        

 

Both Affiliated FM and St. Paul-Travelers are excellent insurers.  Affiliated maintains an AM Best Insurance Rating of A+ XV which equates to a superior rating in the financial size category of $2,000,000 or more surplus conditional reserves reported.  St. Paul-Travelers maintains a rating of A++ XV which equates to a superior rating and identical financial size.  

 

Fire & Medical Emergency Vehicles and Professional Liability Coverage

 

We are about to complete our second year of coverage for the Fire and Medical Department emergency vehicles and professional Liability with VFIS (Volunteer Fireman’s Insurance Services/American Alternative Insurance Corporation).  You may recall that two years ago we were introduced to VFIS, a specialty emergency services insurer, by the brokerage of Arthur J. Gallagher as an option to traditional auto insurance markets.

 

Traditional auto underwriting practices had resulted in large premium increases due to the higher risk level of the Fire/Medical Department and an unfavorable loss history.  With the establishment of the relationship with VFIS we significantly reduced our premium and enhanced professional liability coverage with the same policy.  A premium cost savings of $32,000 was realized in the first year alone.     

 

Through our broker, JoAnn Berger of Arthur J. Gallagher, we prepared for the 7/1/05 renewal date.  As preliminary talks with VFIS underwriting indicated we would be seeing a second year of increases, we approached a competitor company, ESIP (Emergency Services Insurance Program/Arch Insurance Group), for comparison.  ESIP is a company formed 10 years ago by former VFIS executives.  The coverage form and loss control services are nearly identical to that of VFIS with some enhancements.     

 

VFIS did provide a renewal quote in the amount of $81,278 (includes brokerage fee) which represents an increase of 5.14% over last year.  ESIP provided a quote in the amount of $65,988 (includes brokerage fee) which represents 23.17% ($15,290) less than the renewal quote of VFIS.  In addition, the quote provided by ESIP includes portable equipment coverage with a $1,000 deductible and limit of $750,000.  With VFIS the cost and administrative requirements had been determined not cost effective.       

Text Box: Table 3 Text Box: Table 2



VFIS/AAIC’s AM Best Insurance Rating has been downgraded from A+ XV which is a superior rating to A XV which is an excellent rating in the financial size category of $2,000,000 or more surplus conditional reserves reported.  ESIP/Arch Insurance Group maintains a rating of A- Xll which is an excellent rating with a financial size category of $1,000,000 to $1,250,000.

 

We have presented and discussed this change in coverage with Chief McSwain and Deputy Chief Bradford.  Deputy Chief Bradford assisted in the examination of the coverage and loss control services and by performing a telephone survey of other entities currently insured with ESIP.  They concur with the recommendation to bind coverage with ESIP rather than VFIS.

 

 

 

Staff Recommendation

With considerable review, staff recommends binding Building/Property coverage with Affiliated FM and Fire/Medical Auto/Portable Equipment/General, Management, and Professional Liability coverage with ESIP for the insurance period of 7/1/05 to 7/1/06.  Staff further recommends canceling the Boiler/Machinery policy that renews 12/31/05 with Cincinnati Insurance.  Should you have further questions, please do not hesitate to contact Frank or me.