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HomeMy WebLinkAboutAgenda Statement 1981/06/16 Item 14 ... COUNCIL AGENDA STATEMENT ," Item" 14 . .. ITEM TITLE: Meeting Date 6/16/81 Resolution ID5'~/- Awarding Public Liability Insurance Coverage y SUBMITTED BY:~ rector of Fi nance (4/5ths Vote: Yes No~) " .. We have received our annual renewal bids for the City's Public Liability Insurance. It is my RECOMMENDATION: . - That Council maintain our present $500,000 self-insured retention and accept Option I-A at a total cost of $25,000. DISCUSSION: .. At the preliminary budget review session on May 16,1981, the City Council approved the Insurance Budget for 1981-82 with the exception of the Public Liability Insurance Coverage. .. Staff was directed to contact an outside Risk Management Consultant to review and determine the proper self-insured retention level for the City based on our current financial condition. The firm of Warren, McVeigh & Griffin, Risk Management Consultants, was selected because of their past experience with the City in developing a risk management audit manual. ". ~ We provided them a copy of all bids (attached) for renewal of our present liability policy along with a copy of our 1980-81 budget, a print-out of our Liability Experience for the period July 1, 1976 to March 31, 1981, and a copy of our current Liability Policy in force. After their review of the bids received and an analysis of the lowest long- term cost, considering both retained losses and insurance premiums, they are recommending our present retention level of $500,000 per occurrence be retained. The attached letter provides the detail of their analysis along with their conclusions and recommendations. .... ----,--- .. i1' ..-' Ci.',":,'"',"~,:-.',;,I," 0 ~ .- C'/ t;..~-,: c'- '_y ,'- "f ~ . - . /' ,\. r"' I ,"~. ,... "~ i ...~ i (~hU!d \iSl8., vS;I:'Jlit.C.. looted 6-1'-~~d ~_"7 ~ I (J /;)0 ) Form A-113 (Rev. 11/79) General Liability Insurance Proposed for the City of Chula Vista By Creaser & Price Insurance Agency Self-Insured Premiums Option Retention Company Primary Excess To ta 1 lA 500,000 Canadian Indemnity(l) 1 5,000 10,000 25,000 lB 500,000 Admi ra 1 Insurance(l) 18,060 10,000 28,062(2) lC 500,000 National Union & Covenant Mutual Combined 29,946 2A 250,000 Canadian Indemnity(l) 24,000 10,000 34,000 2B 250,000 Admi ra 1 Insurance(l) 39,732 10,000 49,732(2) 2C 250,000 National Union & Covenant Mutual Combined 33,685 3A 200,000 Admiral Insurance 58,824 10,000 68,824(2) 4A 100,000 Canadian Indemnity(l) 32,000 10,000 42,000 4B 100,000 National Union & Covenant Mutual Combined 42,941 5A 50,000 Canadian Indemnity(l) 72 ,000 10,000 82,000 Notes: (1) Excess insurance can be provided by either New England Reinsurance Corporation or Old Republic Insurance Company at a cost of $10,000 per year. (2 ) Includes State taxes and stamping fee for Admiral Insurance Company. I () 5'01 .creaser, 'NSURANCEprice This Firm IS Independently Owned and Operated BONITA (Main Office) 145 Willow Street, Bonita, California 92002 . Telephone (714) 267-3600 From La Jolla and EI Cajon (714) 263-9212 SAN DIEGO 8388 Vickers Street, San Diego, California 92111 . Telephone (714) 277-4288 May 20, 1981 City of Chula Vista 276 Fourth Avenue Chula Vista, CA 92010 Attn: Mr. Gordon Grant, Finance Officer Dear Gordon: Listed below are renewal quotes for the City of Chula Vista Public Liability exposure. The primary coverage is written on the "California Public Entity Form" and excess on an "Umbrella" excess liability form. CANADIAN INDEMNITY COMPANY PREMIUM ..,.. $1,000,000 with $500,000 SIR $15,000 a. b. $1,000,000 with $250,000 SIR $24,000 c. $1,000,000 with $100,000 SIR $32,000 d. $1,000,000 with $ 50,000 SIR $72,000 ADMIRAL INSURANCE COMPANY a. $1,000,000 with $500,000 SIR $17,500 b. $1,000,000 with $250,000 SIR $38,500 c. $1,000,000 with $200,000 SIR $57,000 Note: Admiral premiums subject to 3.2% state tax and stamping fee NEW ENGLAND REINSURANCE CORP. a. $9,000,000 excess of $1,000,000 $10,000 151 (Ofiol . . . because knowledge is the best insurance~ May 20, 1981 Page 2 OLD REPUBLIC a. $9,000,000 excess of $1,000,000 $10,000 The following figures combine National Union Insurance Company on the coverage to $1,000,000 and Covenant Mutual on the $9,000,000 umbrella: a. $10,000,000 with $500,000 SIR $27,223 Brokerage Fee 2,723 b. $10,000,000 with $250,000 SIR $30,623 Brokerage Fee 3,062 c. $10,000,000 with $100,000 SIR $38,628 Brokerage Fee 3,863 " These figures are all substantially lower than last year's quotes and are all with excellent companies. Please let me know of your decision as soon as possible, and we will effective coverage accordingly. ~ Sincerely, CfEASER, P~ICE INSURANCE AGENCY, INC. lit c,~~L ;, ~e~, Charles S. Shippe~ -j CSS:sp ( 0 r::yO I .- Warren, McVeigh &: Griffin Risk Management Consultants June 4, 1981 Mr. Gordon K. Grant Director of Finance City of Chula Vista 376 Fourth Avenue Chula Vista, California 92010 Analysis of Quotations 1981 Liability Insurance Renewal Dear Mr. Grant: , In response to your request we have reviewed the options offered to the City of Chula Vista for its July 1, 1981 liability insurance renewal. In completing our analysis, we have: . 1. Analyzed loos reports presented to us, covering the period July 1, 1976 to March 31, 1981. 2. Reviewed current self-insurance reserves in the 1980/81 City budget. Conclusions and Recommendations . , We recommend that the City of Chula Vista purchase the $500,000 self-insured retention program offered by the Canadian Indemnity Company. Coverage in excess of the Canadian Indemnity should be purchased from New England Reinsurance Company. It is our opinion that the recommended retention level ($500,000 per occurrence) will result in the lowest long-term cost, considering both retained losses and insurance premiums. In reaching our conclusion, we have relied heavily on the City's loss history. ~ Alternatives A summary of quotations offered to the City is contained in Exhibit 1. It can be seen that the Canadian Indemnity quotations are the lowest at the $100,000 and $500,000 retention levels and within $315 of the lowest quote at the $250,000 retention level. At the $500,000 retention level, we recommend the Canadian Indemnity program, because of the cost savings and the fact that the Canadian Indemnity Company has a Best's rating of A+, XI versus Admiral's rating of A, X. Our selection of the Canadian Indemnity program is based on the assumption that Canadian Indemnity will duplicate the coverage purchased from Admiral Written confirmation of this should be obtained from 10')0' 1420 Bristol Street North, Newport Beach, California 92660 . (714) 752-1058 City of Chula Vista -2- June 4, 1981 .. your broker. We recommend remaining with the New England Reinsurance Corporation, because of its participation on the risk in the past and the fact that there is no serious quality difference between the New England Reinsurance Company and the Old Republic. .:- For an additional $9,000, the City can reduce its per-occurrence retention from $500,000 to $250,000. At the $250,000 retention level, there are two comparably priced options: The Canadian Indemnity/New England Reinsurance combination at $34,000, and the National Union/Covenant Mutual option at $33,685. The Admiral quote at the $250,000 retention level is considerably more expensive and has nothing in particular to recommend it. The decision between the other two companies is not so simple. Both are good companies. The National Union is considerably larger and is based in New York with major service offices in California. The Canadian Indemnity Company is based in Los Angeles and is an admitted California company, which may result in a more economical and expeditious response to major claims. One other consideration is that, with the Canadian Indemnity program, the New England Reinsurance Company would be on the excess layer. This provides some continuity, as New England provided excess coverage in the past. For an additional $8,000 or $9,000 over the pricing of the $250,000 retention level, the City can further reduce its per-occurrence retention to $100,000. Again, the cost of this particular program is virtually identical for either the Canadian Indemnity/New England Reinsurance or National Union/Covenant Mutual combinations. ~ In our review, we quickly rejected both the Admiral proposal for a $200,000 self-insured retention and the Canadian Indemnity proposal for a $50,000 self-insured retention. In the case of the former, the City would have to pay an additional $35,000 to purchase only $50,000 in coverage, versus the pricing for the Canadian Indemnity or National Union programs at a $250,000 SIR. In the case of the Canadian Indemnity program for a $50,000 self-insured retention, the carrier would require $40,000 more to reduce the retention level from $100,000 to $50,000. Neither of these programs would be reasonable for the City to consider. . . Discussion ~ All of the companies which your broker has suggested as possible markets have excellent Best's ratings, ranging from A, X (Admiral Insurance Company) to A+, XV (National Union Insurance Company). Assuming the pricing were comparable, it would be preferable to remain with the same markets with which you are now insured. However, where a competing market offers comparable terms and conditions to your imcumbent carrier as well as a significant price advantage, a change is in order. In Exhibit 2 we have summarized the City's large loss history. Actual losses exceeding $5,000 have been stratified. Over the past five years, there have been a total of only 12 losses exceeding $5,000. Only four losses have a value greater than $10,000 per occurrence. That is an average of just under one loss per year in excess of $10,000. The City's largest single loss was $42,000. While it is important to acknowledge that there is a chance that the City may experience a loss greater than $100,000 in the future, the chance of such loss is extremely remote based on the City's past experience. lot)O ( Warren, McVeigh & Griffin ... City of Chula Vista -3- June 4, 1981 ..y While we recommend the $500,000 self-insured retention as a first choice, we think that programs offered at self-insured retentions of $250,000 and $100,000 are reasonably priced. It is clear from the pricing of these lower self-insured retentions that, in the evaluation of the insurance markets, there is an equally remote probability of loss above $100,000 per occurrence as above $250,000 per occurrence. The difference in price between the $500,000 and $250,000 retention levels is $9,000. Assuming a large loss would take three years to pay and a 10% interest rate, the City would have to incur a loss exceeding $500,000 more frequently than once every 19 years for the $250,000 retention to provide the lowest long-term cost. Similarly, a $100,000 retention should only be selected if a loss exceeding $250,000 is expected more often than once every 13 years. .. Nineteen (or 13) years seems a long time. However, our review of the City's loss history and experience with other governmental entities indicates that most cities do not incur a $500,000 loss every 19. Nor do they incur a $250,000 every 13 years. Another consideration in selecting the $500,000 self-insured retention is that the Liability Loss Fund currently has a value of approximately $810,000, versus outstanding liabilities of approximately $147,000, or a net fund value of $663,000. This fund is sufficient to pay a $500,000 loss. It is important to note that our analysis and recommendations are based solely on the loss data supplied to us. We have not visited the City of Chula Vista to evaluate changes in loss exposures from prior years. ,. Further, budget cuts may increase the chance of loss due to cutbacks in such programs as tree trimming, signing of streets, and road maintenance. If such cutbacks are to be made, they could inject a more conservative element into your decision process regarding the level of retention you select. If we can provide any further assistance to the City, please let us know. J. Sincerely yours, ~ /J ~, ~, ...lJL..--,--_ v J c~~~. Alan B. Cantor ~ Jhi~~~ !Ofiol Warren, McVeigh & Griffin .. Exhibit 1 CITY OF CHULA VISTA ... Liability Insurance Options 't Self-Insured Premiums Retention Carri ers Primary Excess Total $500,000 a. Canadian Indemnity Company1 $15,000 $10,000 $25,000 b. Admiral Insurance Company1 18,0602 10,000 28,0602 .. 29,9463 c. National Union &: Covenant Mutual 250,000 a. Canadian Indemnity1 24,000 10,000 34,000 b. Admiral Insurance Company1 39,7322 10,000 49,7322 "" c. National Union &: Covenant Mutual 33,6853 200,000 Admiral Insurance Company 58,8242 10,000 68,8242 100,000 a. Canadian Indemnity1 32,000 10,000 42,000 . b. National Union &: Covenant Mutual 42,9413 50,000 Canadian Indemnity1 72,000 10,000 82,000 .... Notes: (1) Excess insurance can be provided by either New England Reinsurance Corporation or Old Republic Insurance Company, at a cost of $10,000 per year. " (2) Includes State Taxes and Stamping fee for Admiral Insurance Company. (3) Primary and Excess Combined. .. I Ot)O I Warren, McVeigh & Griffin + Exhibi t 2 CITY OF CHULA VISTA ., Large Loss Summary Policy Years 1976/77 - 1980/81 (through March 31, 1981) . .. NUMBER OF LOSSES WITHIN EACH POLICY YEAR Loss Range 1976/77 1977/78 1978/79 1979/80 1980/81 Totals Avg/Yr. . $ 5,000-10,000 3 1 0 2 2 8 1.6 $10,000-20,000 0 0 1 0 0 1 .2 $20,000-30,000 0 1 1 0 0 2 .4 $30,000-40,000 0 0 0 0 0 0 0 .. $40,000-50,000 0 0 0 1 0 1 .2 $50,000+ 0 0 0 0 0 0 0 Total Number of 3 2 2 3 2 12 2.4 ,. Losses Greater Than $5,000 Losses Greater Than 0 1 2 1 0 4 .8 $10,000 J. Total Incurred Losses $105,423 $55,786 $51,269 $86,155 $44,090 ($58,787 annualized) .,. .. ~ /o'))DI Warren, McVeigh & Griffin