Staff recommends approval. Lockton Companies, Inc., who has been the City’s insurance broker since 2005, submitted the renewal proposal. The proposal was reviewed and recommended for approval by Charlesworth Consulting, LLC, the City’s risk management consultants.

Staff recommends approval as follows:

1. Utility Property: Utilizing AIG as the lead insurance form, the allocation of risk is: 45% AEGIS; 25 AIG; 20% Swiss Re; and 10% London
2. Non-Utility Property: Midwest Public Risk (MPR) 

The 2020-2021 renewal proposal is the result of an extensive effort by Lockton, Charlesworth, and staff to maintain suitable coverage at a reasonable price. 

Lockton approached numerous carriers to try and find coverage for the City, and a summary of their efforts is attached. Nationally, the property insurance market has become challenging, with coverage limitations, increased deductibles and higher premiums. This is true for the City’s renewal, as the City’s insurance rate increased across the board.

Utility Property

For the utility property, the City has historically had a quota share program, where several carriers provide coverage, and each take a portion of the risk. Each carrier has slightly different terms, limits, and deductibles. This year, the quotas, carriers and terms changed as shown on the attached Utility Property Renewal Summary, and most variations are due to market conditions. The biggest change is that the Blue Valley Power Plant is now covered at actual cash value, not replacement cost, because the City will not rebuild the plant in the event of a total loss. The City also adjusted the scheduled values for the combustion turbines to reflect anticipated replacement cost.

Non-Utility Property

For the Non-utility property, Lockton presented three options: two private insurance options and one risk pool. Risk pools and insurance are different, and each has its own pros and cons. A summary of those differences is attached. The most critical difference is that if losses exceed expectations, the members can be assessed to make up the difference, meaning that the City could owe more than just the quoted premium. That said, MPR has never assessed its members. MPR-MO purchases reinsurance through Alliant and has a $500,000 retention.

When comparing the quotes from Sompo, Hartford, and MPR, MPR offered both a lower premium and lower deductibles for the upcoming year. The City will have a $25,000 deductible for all non-utility locations for most types of losses, compared to the $50,000 deductible last year. A summary of the options and key differences is attached.

As with any risk pool or insurance carrier, coverage should be regularly reviewed and marketed to make sure the City is procuring the most comprehensive coverage at the best price. For this upcoming year, Staff believes that option is MPR.

The fiscal impact to the City is $973,287. The Utility portion of the insurance is $613,816. This amount includes an additional $30,000 for a required inspection fee. 

The non-utility premium is $359,474. This is different from the attached 12 month proposal due to being pro-rated for 11 months.

Property insurance premiums are paid from the Risk Management Fund 093, account number 4293-5207. The premium is then allocated to each department based on their actuarial impact to the premium. The 2020-2021 costs will be billed back to departments as follows: