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CC - CONSENT ITEM: (1) Approval of Annual Insurance Policy Renewals for the City’s Insurance Portfolio for Fiscal Year 2023 - 2024 with a Premium of Approximately $3,925,009.85, as Presented by City’s Insurance Broker AON Risk Insurance Services West, Inc. (AON); (2) Waiver of Competitive Bidding Procedures Pursuant to Culver City Municipal Code Section 3.07.075.F.3; and (3) Amendment to Existing Professional Services Agreement with AON to Continue Providing Broker Services for the City’s Insurance Programs through June 30, 2024.
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Meeting Date: June 26, 2023
Contact Person/Dept.: Amalia Sanchez / Human Resources
Phone Number: (310) 253-5640
Fiscal Impact: Yes [] No [X] General Fund: Yes [] No [X]
Attachments: Yes [] No [X]
Public Notification: (E-Mail) Meetings and Agendas - City Council (06/22/2023)
Department Approval: Dana Anderson, Human Resources Director (06/20/2023)
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RECOMMENDATION
Staff recommends the City Council (1) approve the recommended Fiscal Year 2023-2024 insurance renewal program with a premium of approximately $3,925,009.85, as presented by the City’s insurance broker AON Risk Insurance Services West, Inc.; (2) waive competitive bidding procedures pursuant to Culver City Municipal Code Section (CCMC) 3.07.075.F.3; and (3) approve an amendment to the existing professional services agreement with AON Risk Insurance Services West, Inc., to continue providing broker services for the City’s insurance programs through June 30, 2024.
BACKGROUND
The City is currently self-insured and annually purchases lines of insurance coverage to minimize the adverse effects of accidental losses and claims against the City. Since 2016, the City has contracted with AON Risk Insurance Services West, Inc. (AON) to purchase insurance coverage for the City. Prior to that, the City was a member of the Independent Cities Risk Management Authority (ICRMA) for the purpose of participating in pooled programs for liability, workers compensation, auto physical damage, crime, and cyber insurance. As indicated below, for the first four years after leaving ICRMA, the City realized a significant savings, receiving additional coverage and higher limits for a lower premium.
The City’s self-insurance includes major risk programs such as property, liability, excess earthquake/flood liability, general liability, auto, workers' compensation and other lines of insurance. In order to protect the assets of the City from potential loss, the City purchases various lines of insurance coverage for these risks. To assist in the purchase of various lines of insurance, the City entered into an agreement with AON Risk Insurance Services West, Inc. for professional insurance brokerage services.
DISCUSSION
AON has marketed the City's insurance program to carriers and has solicited pricing that, if approved, is $546,893.28 (16%) more than the current year while providing the same level of coverage. AON has explained that this increase is the result of a challenging market due to the state of the economy, global pandemic and increase of policy liability claims, and that markets nationwide are seeing substantial increases. Insurance carriers are reducing coverage limits and increasing premium costs. This is primarily due to the high level of claim activity and multimillion-dollar jury verdicts.
The following is premium information for Fiscal Year 2022/2023 and Fiscal Year 2023/2024:
2022 - 2023 Program
2023 - 2024 Renewal Program
AON representatives briefed staff on changes in the market and the impact experienced by the City’s insurance program. Most significantly for the following lines of coverage:
• Property: The State of California is currently experiencing a hard market due to a difficult business environment in the state. There have been several factors contributing to this; including high inflation, cost of goods and labor, loss of carriers which has led to a reduction of available limits, and catastrophic natural events. Additionally, property values are trending between 15% - 18% and, as a result, the City’s incumbent carrier agreed to increase the City’s property values by 10% which led to a premium increase of 18.79%. The carrier has also sub-limited several locations due to combustible construction and lack of a full sprinkler protection system.
• DIC (Difference in Condition): Flood and Earthquake insurance market saw an overall 47% increase due to higher modeling results and pricing guidelines. Catalytic, the incumbent carrier, provided a quote with $175,000 increase which represented 100% increase from the previous year. The program opted for a quote from Quota Share Partner for $91,000 less compared to Catalytic.
• Excess Liability: Like Property coverage, Liability insurance is being impacted by a hard market due to a difficult business environment in the state of California and the loss of several insurance carriers. In addition, this line of coverage is experiencing dramatic increases in settlement values, nuclear verdicts for auto and law enforcement claims, increase in the number of claims being reported, and a reduction in available limits. The Excess Liability program received a 10.70% year over year premium increase this year with a value of $215,989.
Amendment to AON Agreement
Since 2016, the City has contracted with AON Risk Insurance Services West, Inc. (AON) to purchase insurance coverage for the City. Culver City Municipal Code (CCMC) Section 3.07.065.C.2 exempts certain general services, including insurance, from the formal competitive bid process. In compliance with CCMC Section 3.07.045, which requires competitive bidding procedures in the event the same vendor has been utilized for a period of five consecutive years, a Request for Proposals (RFP) is being planned for issuance. CCMC Section 3.07.075.F.3, provides the Council may waive, by a majority vote, bidding requirements if it is deemed to be in the City’s best interest and authorize a negotiated contract. Based on the foregoing, staff recommends the City Council waive the bidding requirements and authorize an extension to the existing agreement with AON through June 30, 2024, to ensure continuation of services during this interim period through completion of the RFP process.
FISCAL ANALYSIS
Sufficient funding for the City’s insurance premiums is included in the Adopted Budget for Fiscal Year 2023-2024 in Account Nos. 30922220.650100 (Premium/Claims - Insurance Premiums Liability), 30922220.650200 (Premium/Claims - Insurance Premiums Other) and 30922220.650400 (Premiums/Claims - Workers Comp Insurance Premiums).
The City does not pay broker fees to AON directly. Their fees are paid to them by the insurance carriers.
ATTACHMENTS
None
MOTIONS
That the City Council:
1. Approve recommended Fiscal Year 2023 - 2024 insurance renewal program with a premium of approximately $3,925,009.85, as presented by the City’s insurance broker AON Risk Insurance Services West, Inc.;
2. Waive competitive bidding procedures pursuant to Culver City Municipal Code Section (CCMC) 3.07.075.F.3;
3. Approve an amendment to the existing professional services agreement with AON Risk Insurance Services West, inc. to continue providing broker services for the City’s insurance programs through June 30,2024;
4. Authorize the City Attorney to review/prepare the necessary agreements; and
5. Authorize the City Manager to execute such documents on behalf of the City.