R2012-174 AUTHORIZING BINDER COVERAGE WITH ARTHUR J. GALLAGHER RISK MANAGEMENT SERVICES, INC.

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DEPARTMENT OF FINANCIAL MANAGEMENT RISK MANAGEMENT DIVISION MEMORANDUM NO. 2012-012 DATE: September 12, 2012 TO: Honorable Mayor Michael T. McElroy and City Council FROM: Ryan McCrady, City Manager Gregg Zientara, Director of Financial Management Scott Clark, Risk Manager SUBJECT: CITY PROPERTY, LIABILITY AND WORKERS COMPENSATION INSURANCE SUMMARY RECOMMENDATION: Staff recommends that City Council approve the purchase of excess insurance from Munich RE, Liberty Mutual, Travelers Indemnity and Chubb Corporation for the period October 1, 2012 through September 30, 2013 and purchase independent professional claims administration, loss prevention services and loss reporting from Gallagher Bassett for the period of October 1, 2012 through September 30, 2015. BACKGROUND: On July 5, 2011, Council awarded a contract to A. J. Gallagher for the marketing of excess insurance, selection of professional claims administrations, loss prevention services and loss reporting for the period October 1, 2011 through September 30, 2014. The A. J. Gallagher team includes individuals from their Itasca, Illinois office as well as the A. J. Gallagher Decatur office. A. J. Gallagher secured quotations for the policy year October 2012 thru September 2013 from insurance companies that are willing to provide excess insurance coverage for the City and this year's quotes are competitive and do represent the insurance market place for public entities. The City's current program of self insured retention (similar to deductible) and insurance includes liability to limits of $10,000,000 with a $150,000 self insured retention (SIR), property insurance for full replacement value for real property, high valued vehicles and equipment to limits of over $162,000,000 with a $150,000 SIR on real property and a $75,000 SIR on replacement value on high valued vehicles and equipment, and statutory workers compensation limits with a $200,000 SIR. The quotations received for liability and property insurance include the same limits of insurance and SIR as the City's current program. No insurance company offered workers compensation coverage at the current SIR of $200,000 but did offer options at $500,000 SIR, $750,000 SIR and $1,250,000 SIR. The current insurer offered SIR's of $500,000 and $750,000. The five (5) year worker compensation history of losses for the period from October 2005 through September 2010 shows that 13 claims have exceeded the City's SIR of $200,000. All but three (3) of those claims have closed but the annual average amount above the current SIR is over $760,000. The recommendation is for the $500,000 offered by Liberty Mutual, the current carrier. The premium savings that would be from selecting higher self-insured retentions does not offset the higher risk the City would be taking on the workers compensation claims.