CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
title
Approve the recommendation by Alliant Insurance to award Property, Cyber Liability, and Pollution Liability insurance coverage through the Alliant Property Insurance Program for an amount not to exceed $788,006.78 and for a one-year term
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DEPARTMENT: Finance Department
SUBMITTED BY: Rachel Mayer, Director
BOARD/COMMISSION REVIEW:
N/A
BACKGROUND:
In August 2017, the City Manager awarded Contract 17-040, Insurance Broker Services, to Alliant Insurance Services (Alliant). As the City’s insurance broker, Alliant maintains the City’s insurance policies. In addition, Alliant works on behalf of the City to procure options on various insurance policies before providing a final recommendation to the City for approval.
The City’s current property insurance and related policies will expire on July 1, 2022. As a client of Alliant, the City uses the Alliant Property Insurance Program (APIP), which is a comprehensive policy structured through a group purchase program providing coverage for the following:
1. All-risk, flood and earthquake insurance for the City’s buildings, infrastructure, and vehicles;
2. Boiler and machinery insurance;
3. Cyber liability; and
4. Pollution liability.
APIP covers up to $1 billion under a layered and shared framework, which combines the services of more than 20 property insurance carriers to reduce costs while maintaining a sufficient level of protection.
As part of APIP, Alliant also provides the City with two additional policies for cyber liability and pollution liability as an underwritten component. Beazley Group (Lloyd’s) will serve as the cyber liability carrier and Ironshore Specialty Insurance Company will serve as a pollution liability carrier.
DISCUSSION:
Challenging market conditions persist across the insurance industry resulting in significant increases in insurance premiums over the past two years. Insurers continue to experience significant losses as a result of catastrophic weather and other events across the nation, including hurricanes, wildfires, tornados and severe winter storms. While the City has experienced minimal losses in recent years, insurance claims across the industry are impacting all policyholders. As a result, the City’s 2022 property insurance rate per $100 of insured value increases by 14.97%
Additionally, the current inflationary environment is driving up construction costs and property values are being adjusted accordingly to ensure that policies adequately cover the cost of reconstruction. The 2022 renewal includes a 6.56% increase in the total insured value (TIV) of City property covered under our policy.
These two factors result in a proposed property insurance premium of $754,216, which is a 20% increase over last year’s premium. While this increase is significant, it is far less than the 40% increase experienced in 2021.
The annual cost of cyber liability insurance also continues to rise significantly. Government organizations remain a primary target for cybercriminals, which has created an extremely volatile insurance market. The annual cost for cyber liability included in this policy renewal increases from $10,592 to $29,141, an increase of 175%.
Pollution liability also increases by 15% but remains a relatively small portion of the City’s insurance coverage at $4,649.
A year-over-year comparison of the City’s property TIV, property insurance rate, and policy premiums is provided below:
|
|
2021/2022 |
2022/2023 |
Change |
|
Total Insured Values (TIV) |
$568,036,679 |
$605,355,539 |
6.56% |
|
Account Rate (per $100) |
0.1132215 |
0.1301726 |
14.97% |
|
Property Annual Cost |
$628,507.97 |
$754,216.74 |
20.00% |
|
Cyber Liability Annual Cost |
$10,592.75 |
$29,141.00 |
175.10% |
|
Pollution Liability Annual Cost |
$4,039.16 |
$4,649.04 |
15.09% |
|
Total Annual Cost |
$643,139.88 |
$788,006.78 |
22.52% |
The proposed policy terms and conditions remain predominately the same as the existing policy. Alliant reviewed any proposed changes with City staff and none pose any significant concerns.
Staff recommends approving the APIP coverage for a one-year term effective July 1, 2022, through July 1, 2023, to avoid any lapse in coverage, which may expose the City to significant financial liability should a catastrophic event occur.
FISCAL IMPACT:
CIP: N/A
Premium payments for property insurance are expensed to the Premiums/Property Insurance account listed below. After experiencing a 40% increase last year and understanding that market conditions remained unstable, staff budgeted $836,082 for 2022 policy renewal, an increase of 30%. The proposed premium of $788,006.78 comes in under budget by $48,075.
|
Account Number |
Fund Description |
Total Budgeted Amount |
|
60101600-524203 |
Self-Insurance |
$836,082 |