Memorandum

City of Lawrence

City Manager’s Office

TO:	David L. Corliss – City Manager
FROM:	Michael Bennett – Risk Manager
CC:	Cynthia Wagner – Assistant City Manager Diane Stoddard – Assistant City Manager
Date:	June 5, 2012
RE:	July 1, 2012 Insurance Policy Renewals Property and Casualty Insurance Fire and Medical Auto/Professional Liability Insurance Fiduciary Liability Policy

Introduction

On July 1, 2012 at 12:01am, insurance policies for the City’s Property and Casualty and Fire and Medical Auto and Professional liability coverage will expire.  Further, staff has been asked to explore the cost of fiduciary liability coverage.  This memo contains staff’s recommended actions, requests your approval to bind coverage in advance of the expiration and purchase fiduciary liability coverage.

Background Building/Property

Early in the second quarter of 2012, staff began working with our insurance broker, Arthur J. Gallagher, on The City’s property and casualty insurance renewal.  Staff was concerned with this renewal due to a general hardening of the market and information received from other governmental entities through professional organizations. Staff was also concerned because the City had just submitted a claim for damages at the parks maintenance facility at 941 East 11^th Street in excess of $400,000.  With the addition of the Carnegie Building and West Labs building the last two years, along with minor appreciation of 3% for this renewal, the City has approximately $285 million in insurable assets. 

Our application and portfolio was submitted to numerous carriers.  The best options came from The Hartford.  The Hartford is willing to renew the policy for $131,635.  This is with a $25,000 deductible.  We can lower the premium to $122,830 by increasing the deductible to $50,000.  This is a savings of $8,805.

Increasing our deductible increases our exposure by $25,000.  The exposure would be recouped in three years; $8,805 x 3= $26,415.  The City has had 1 claim that exceeded our deductible in the last 6 years.  Prior to the fire in February, the last claim was in March 2006, a wind and hail claim for $75,000.    

Background Fire and Medical Emergency Vehicles, Professional Liability, and Portable Equipment Coverage

Coverage for the Fire and Medical Department’s emergency vehicles, professional Liability, and portable equipment has varied from year to year between ESIP and VFIS depending on the premium.  The services and coverage provided is identical.  LDCFM has no issue with either carrier. 

Once again, the premiums quoted by both carriers are nearly identical.  VFIS quoted $54,942 and ESIP quoted $55,898.  This is a decrease from last year’s quote of $61,570. Last year, coverage was provided by ESIP.  Despite the minor savings in premium by switching to VFIS, staff suggests that ESIP be renewed.  It eliminates any coverage dispute issues that may arise.

Broker Fee

The brokerage fee has remained static the last four years at $16,510.

Combined Costs

Hartford        $25K deductible                                     $50K deductible

$131,635                                             $122,830

ESIP             $55,898                                               $55,898

Fee              $16,510                                               $16,510

Total               $204,043                                                     $195,238

                   6.5% increase from 2011                        3.3% increase from 2011    

This total includes the West Lawrence labs building.  West Lawrence Labs will be invoiced their portion of the insurance, which totals $4,115. 

Fiduciary Liability Policy

This spring, staff was directed to investigate the purchase of Fiduciary Liability Coverage for the trustees of the employee retirement fund(s), 457 plan.  The plan currently has assets of approximately $15 million.

Applications were sent to The Hays Companies and to CEK Insurance for brokering.  CEK procured a policy from The Hudson Insurance Company, an “A” rated insurance carrier per A.M. Best, in the amount of $5,615.88.  The bid procured by The Hays Companies from Chartis is not competitive.  It is $8,500 for the same coverage.  Both policies provide fiduciary liability coverage in the amount of $1 million.  This amount was deemed satisfactory by both brokers and by staff.

Recommended Action

Staff recommends increasing the deductible to $50,000 and renewing property and casualty coverage with The Hartford for the insurance period of 7/1/12 to 7/1/13 for an estimated premium of $122,830.  Staff further recommends binding coverage for Fire and Medical Auto/Portable Equipment/General, Management, and Professional Liability coverage with ESIP for the insurance period of 7/1/12 to 7/1/13 at an estimated premium of $55,898.  Finally, staff recommends purchasing Fiduciary Liability Coverage from The Hudson Company in the amount of $5,615.