HomeMy WebLinkAboutResolution - 2011-R0552 - Purchase Property Insurance - ACE Fire Underwriters Insurance Company - 12/14/2011Resolution No. 2011-80552
December 14, 2011
Item No. 5.4
RESOLUTION
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK:
THAT the Mayor of the City of Lubbock or his designee is hereby authorized and
directed to purchase for and on behalf of the City of Lubbock, property insurance by and
between the City of Lubbock and ACE Fire Underwriters Insurance Company in the amount of
$50,000,000 insurance coverage for Montford Dam, pursuant to the terms and conditions
attached hereto as Exhibit "A," and in a final form acceptable to the City Manager and City
Attorney for a total premium in an amount not to exceed $205,932; and
THAT the City Manager or designee may execute any routine documents and forms
associated with said insurance coverage.
Passed by the City Council on _December 14, 2011
r �
TOM MARTIN, MAYOR
ATTEST:
RRebca Garza, City ecreta
APPROVED AS TO CONTENT:
of Risk Management
APP D A TO FORM:
Chad Weaver, Assistant City Attorney
vw/cedocs/Res Agreement -ACE Fire Underwriters Ins, Co.
December 5, 2011
TABLE OF CONTENTS
■ Executive Summary
■ Authorization of Property Insurance
■ Claims Management Services,
■ Partnership with a Value -Added
Wholesaler
• Account Team
wwwMI)C011c.com
CARRIER: WESTCFICSTER DIRE INSURANCE COMPANY
PARTICIPATION: 100%($50,000,000)
BEST'S RATING: A+ XV
RATE: 0. Ili+) without terrorism
RATE: 0.159'31) with terrorism
Annual Premium (01118/12 to 01118/13)
$110,809 Flus $11,019 Terrorism
Short Term Option: (01/18/12 to 10/01/12)
$77,353 plus $7,735 Terrorism
long •rear, Option: (01/18/12 to 10101/13)
$187,2.11 plus $18,721 'Terrorism
Execritive Summary
INTRODUCTION
NAPCO LLC is pleased to continue our partnership with Wells Fargo Insurance Services of
Texas, Inc. and John T. Montford Dau-i/City of Lubbock, and we are grateful to have been given
the opportunity to provide our Property Insurance Renewal Proposal.
NAPCO prides itself on providing our clients with the highest level of professional program
design, marketing and service delivery. Our goal is to continue our long-term business
partnership with Wells Fargo Insurance Services of Texas, Inc. and John T. Montford Dam/City
of Lubbock. We recognize that in order to achieve this goal, \vc must continue to establish trust
and conunitment to positively impact our mutual relationship.
BRIEF MARKE,r UPDATE
The signs have been pointing to a change in the property insurance market for some time and
now the market appears to be in transition away fi-orn the soft conditions that have prevailed over
the last four years. Rising loss ratios and a decline in reserve releases was a sign of an
underlying shift in market dynamics. Catastrophe losses, including the massive earthquake and
tsunami that struck Japan in mid-March, have been significant, reaching an estimated
$52.6 billion in the first quarter alone, compared with Just $37 billion in all of 2010. In addition,
the integration of a new release of a widely used hurricane model has undoubtedly affected
carrier's internal accumulations of risk and associated costs. Certainly, what looks to be a
record-breaking year for tornado losses -- a year that saw devastating tornadoes in the Midwest,
South, and New England — has impacted profitability.
Rate increases on property coverage are now much more common than they were at previous
renewals. Underwriters are reassessing their risk appetite in an environment where their
assumptions about hurricane risk are now in question and where their reinsurance costs are
increasing after heavy first-quarter catastrophe losses.
The insurance industry entered 2011 with an abundance of capacity as investment gains in 2010
helped drive net income and policyholder surplus higher. Underwriting profitability, however,
continues to deteriorate. While the global loss total of $37 billion in 2010 was not enough to
push insurers to start raising rates, significant losses in the first half of 2011 have contributed to
the start of a long -anticipated market turn.
• Early in the year, it was estimated that roughly $74 billion in excess capital would have to be
drained from the U.S. property casualty industry before a hard market could be sustained.
Global insured catastrophe losses totaled approximately $60 billion in the first half of 2011.
• Insured losses from a very active tornado season have exceeded $16 billion. The tornado
which devastated Joplin, Missouri, caused an estimated $1 billion to $3 billion insured loss.
Page. 2 of H
• Other second-quarter catastrophe losses include wildfires in Texas, Arizona and New
Mexico, as well as record Midwest flooding along the Mississippi, Ohio, Illinois and James
rivers.
+ Insured loss from the earthquake and tsunami that struck Japan in March cost the industry
approximately $30 billion, while the earthquakes in New Zealand are estimated al
$10 billion. Other major losses in the first quarter included floods in Australia, and Cyclone
Yasi, which made landfall in northern Queensland, Australia.
• The arrival of the 2011 Atlantic hurricane season on June I brought a renewed focus on the
threat posed by windstorms.
• The series of catastrophes so far this year has made 2011 the highest ever loss year on record,
thus exceeding reinsurers natural catastrophe projections and their 2011 catastrophe budgets.
This will, undoubtedly, result in the market shift the industry has been avoiding for the last
four years.
THE MARKETING EFFORT
The price of "insurance" has historically fluctuated depending on the state of the market coupled
with how the market perceives John T. Montford Dam/City of Lubbock's particular exposures
and individual loss history. Our primary objective remains constant -- to assist you using a
controlled marketing approach in order to manage these fluctuations. By focusing on market
additions and exploring alternative programs, our goal is to design and implement a property
insurance program which protects John T. Montford Darn/City of Lubbock's physical assets and
earnings while optimizing John T. Montford Dam/City of Lubbock's total cost of risk ()-eteufion
+ risk transfer costs).
The key element in our approach to John T. Montford Dam/City of Lubbock's program was to
maintain the optimal balance of pricing and coverage - in a changing marketplace through
early negotiations with incumbent carriers. In keeping pace with the changing market conditions,
our overall objectives included:
• Working closely with Wells Fargo Insurance Services of Texas, Inc. to secure accurate
and up-to-date information.
• Containing John T. Montford Dani/City of Lubbock's risk transfer and risk retention
costs through effective program design.
• Providing John T. Montford Dan-i/City of Lubbock's with aggressive, yet professional
representation in the insurance market, by accessing the allocated standard, surplus lines
and reinsurance capacity.
• Designing an efficient and effective program through capturing underwriter's (comfort
zone) capacity enhancing John T. Montford Dani/City of Lubbock's flexibility to react
to market swings.
• Maximizing carriers' net and treaty capacity, minimizing the need for facultative
reinsurance, further insulating the program from market swings.
• Providing various options for a shorter term policy, as well as an extended tern policy
with a guaranteed rate agreement.
Page 3 of 11
INSURABLE VALUES
The values used for this proposal are summarized as follows:
$76,044,754
TERRORISM
The tragic events of September 11, 2001 spawned Congress to enact the Terrorism Risk
Insurance Act of 2002 (TR1A). This act was extended in 2005 and further amended and
extended in 2007, currently known as Terrorism Risk Insurance Program Reauthorization Act of
2007 (TRiPRA). Please click on the icon below to access details about these Acts and other
terrorism coverage:
Page 4 of I I
NAPCO
AUTHORIZATION OF PROPERTY INSURANCE
This authorization of insurance may not comply wilh the specifications submitted for consideration. Please rend this
authorization carefully and review ilie policy forms for the actual coverages provided. Plense provide written instructions
to NAPCO in order to effect such coverage with the insurance companies outlined herein. This insurance quotation will
be terminated and superseded upon delivery of the formal Confirmation of Insurnrrce issue(] to replace it.
Named Insured: i John T. Montford Dam / City of Lubbock, 'I'X / Lake Alan Henry
Mailing Address: P.O. Boa: 2000
Lubbock, TX 79457
Policy Period: January 18, 2012 to January 18, 2013 at 12:01 AM local time of the insured
address.
Coverages: Property Damage, Newly Acquired Property, Debris Removal, Pollutant Clean -
tip, including Terrorism, and as more fully dgfined in the ACE Inl(imt A*11-ine
Engineered Risk AlCInuscript pollC)), form.
Perils: j All risks of direct physical loss or damage including Flood, Earth Movement
and Named Windstorm, excluding Boiler & Machinery.
Territory: This policy covers within the fifty (50) states comprising the United States of
America and the District of Columbia.
Limits of Liability: $ 50,000,000 per occurrence, except:
The folloiving subliniits do not increase the aboi,e-staled per occruveuce ffinit
of liability:
$ 50,000,000 Pei- occurrence as respects Property Damage;
$ 10,000,000 per occurrence and in the annual aggregate as respects Flood;
$ 10,000,000 Per occurrence and in the afuival aggregate as respects Earth
Movement;
5% of the amount of loss, subject to a inaxlmurn of $2,500,000 per
occurrence as respects Debris Removal.
$ 2,500,000 per occurrence as respects Newly Acquired (90 Days Reporting);
$ 1,000,000 Per occurrence as respects Valuable Papers;
$ 1,000,000 Per occurrence as respects Accounts Receivable;
$ 1,000,000 per occurrence as respects Demolition and Increased Cost of
ConstI•tiction;
$ 1,000,000 per occurrence as respects Intake Tower and Outlet Works;
$ 100,000 Per occurrence as respects Transit;
$ 100,000 per occurrence as respects Intake Bridge;
$ 25,000 per occurrence and in the annual aggregate as respects Pollutant
Clean-up and Removal;
And as (Imre fid1j; def aced in the ACE Engineered Risk policy form.
Page 5 of i 1
MAPCO
AUTHORIZATION OF PROPERTY INSURANCE
This nuthorization of insurance cony not comply with the specifications submitted for consideration. Please read this
authorization carefully and review tine policy forms for the actual coverages provided. Please providc written instructions
to MAPCO in order to effect such covernge with the insurance companies outlined herein. This insuranee quotation will
be terminnted and superseded upon delivery of tine formal Confirmation of Insurance issued to replace it.
Deductibles: $2,000,000 per occurrence all covered loss.
Valuation: Real and Personal Property - Replacement Cost if replaced, otherwise Actual
Cash Value.
And as Blore f dly clefnecl in the ACE Engineered Risk Matutscript folic}� form.
Form: ! Pei- the expiring ACE Inland Marine - Engineered Risk Manuscript Policy
Form, including, but not limited to the following mandatory company
forms/endorsements:
• ACE USA Pollution and Contamination Exclusion
• Electronic Data/Cyber Risk Endorsement
• Asbestos Exclusion; Mold/Fungus Exclusion
Nuclear, Chemical and Biological Exclusion
Caneelintion: Notice of Cancellation or Non -Renewal:
- 60 Days Written Notice.
- 10 Days Written Notice for Non -Payment of Premium.
Other Conditions: boss of Revenue Endorsement — Not Covered
• Fire Department Service Charge — Not Covered
• Expediting Expense — Not Covered
• Extra Expense — Not Covered
Loss Adjustment Expenses — Not Covered
TIV: $76,044,754
Loss Histof•y: No known or reported losses above the deductible.
Annual Premium: $ 110,189 Property Premium
11,01 Premium for Terrorism Coverage
$ 121,208 Total (plus ani, applicable fa. es✓surchargesffees)
* lucluded hereitr is an esilmated strrlalus lures tris calcrrlatiotr amoum. ,Statepreruium
allocutions will be cot frtuecl with the insurer -(s) during the hiuclitrg process.
Page 6 of 11
NAPCO
AUTHORIZATION OF PROPERTY INSURANCE
This authorization of h1surance may not comply with the specifientions submitted for considera(ion, Please react this
authorization carefully and review the police forms for the actual coverages provided. Please provide written instructions
to NAPCO in order to effect such coverage with the insurance companies outlined herein. This insurance quotation will
be terminated and superseder) upon delivery of the formnl Coniirmatiou of Insurance issued to replace it.
Options: The following options are presented to reflect ont), optionsfor polic), terms. All
lirreils, deductibles, rates, terms wird conditions remain as staled in the above
caffhorizalion.
Option 1:
Policy Effective Dates: January 18, 2012 to October 1, 2012
Term Premium:
$ 77,353 Property Premium
$ 7.735 Premium for Terrorism Coverage
$ 85,088 Total (plus ring applicable taies/surcharges4ees)
Oution 2:
Policy Effective Dates: January 18, 2012 to October 1, 2013
Term Premium;
$ 187,211 Property Premium
18 721 Premium for Terrorism Coverage
$ 205,932 Total (plies airy applicable taves/surcharges/fees)**
"For this option, the polic)1 evould be endorsed to ntreke p end nri payable in
2 installments with a r•erte guarantee. Premium is pr{l)rible on Jrmurrry 18,
2012 in the amounI of $77,353 plies $7,735 for Optional Terrorism. Prenriiuu
is pf(yetble on October 1, 2012 in the amount of $109,858 plies $10,986 for
Optional Terrorism.
Minimum Earned: i $250
Insurers: I Westchester Fire Insurance Company (Admitted)
Best's Rating: j A+ XV
This quote is valid only until inception date noted herein.
Page 7 of II
Claims Maiiagement Set -vices
NAPCO is committed to providing professional clamis management services that are creative
and will reduce your total cost of risk.
Even with the most effective loss control program, claims will occur. The impact of these claims
can be mitigated with proactivc and innovative claims management practices.
The overall scope of NAPCO's claim management services include:
■ Identifying a Designated Account Adjuster and other claims experts as deemed
appropriate and necessary.
■ Developing and tailoring claims handling instructions in concert with your needs and the
claims team to manage the claims process effectively and effortlessly.
■ Creating an internal claims procedure document that may be utilized when a loss occurs
to simplify the post -loss mitigation process.
■ Assisting in the claims process by providing necessary resources to address claims issues
that may arise during the life of claim.
■ Coordinating and directing the claims team in large or difficult claims situations by
managing the information flow and providing necessary documentation to validate the
claim.
In addition to the claims services that NAPCO delivers for each and every loss, we are pleased to
offer our Claims Consultation Services for those complex, high value/profile claims. In addition
to the services detailed above, NAPCO will provide:
■ Daily monitoring of the specific claim, including necessary contact with the adjuster
and/or their experts, the Insured and/or specific designated representatives and, of course,
the retailer.
■ On-site visits requested/required by the rctailer/Insured to inspect/discuss/review the
loss/damage or claim documentation.
■ Attending interim and final settlement meetings.
Page 8 of 11
Partnership with a Value -Added Wholesaler
Since the 19th century, producers of goods have relied on wholesalers to distribute their
products. The system works because it is an efficient method for manufacturers to place
products on the shelves of retailers and, ultimately, in the hands of consumers. Wholesalers level
the playing field and enhance both competition and growth opportunities for small and olid -size
retailers by providing access to the same products that are available to larger competitors.
In some respects, the role of the wholesale insurance broker is no different. Wholesale insurance
brokers offer an effective vehicle for insurance carriers --the manufacturers—to distribute their
products. However, in today's increasingly complex risk landscape, wholesale insurance brokers
are much more than product distributors. They are knowledgeable placement specialists who,
collaborating as a team with retail brokers and insureds, offer the advantage of deep expertise in
particular lines or classes of business, sophisticated technology to evaluate risks, and access to
markets that would otherwise be out of reach.
The relationship between retail brokers and wholesale brokers has been evolving over time from
one of independence to interdependence. In an effort to streamline marketing and risk selection,
some specialty insurers restrict access to their capacity to specific wholesale brokers. Retail
brokers, likewise, recognize that a wholesale broker can provide necessary expertise in a
particular industry, class of business, or type of exposure.
The placement process for commercial insurance accounts requires a comprehensive
understanding of all the various insurance company capacities, evolving risk appetites, preferred
layer positioning (primary, buffer, excess, etc.) and financial strength in order to develop the best
program design.
A placement team that combines the power of a retail and wholesale broker provides the insured
undeniable advantages: in-depth knowledge, broad market reach throughout the global
marketplace, strong relationships with underwriters, and familiarity with the insured's needs.
During adverse or hard market conditions—when prices increase because of reduced capacity—a
wholesale broker can be a critical partner in navigating the market to find the capacity to cover
the risk while mitigating some of the higher insurance costs.
Wholesale brokers who are experts in their field and know exactly what information
underwriters need to make a confident evaluation and sound underwriting decision: high-
quality, detailed and complete risk data presented in an organized fashion. Deep industry
expertise, as well as broad marketing reach, will generally produce the most favorable policy
terms and conditions available, while minimizing cost. Specialized liard-to-place risks—such as
high earthquake, flood or hurricane exposures—will benefit from increased competition created
by marketing to additional and diverse carriers.
Page 9ofII
Furthermore, when retail brokers partner with a wholesaler broker on competitive proposals,
history shows such Collaboration drives successful outcomes. Moreover, the additional market
access provided by wholesale brokers assists the retail broker by providing added pricing
leverage against the retailer's direct markets. This ultimately contributes to premium savings to
the insured,
The insured incurs no additional charge in using the services of a wholesale broker while
accessing the substantial benefits of superior market knowledge and placement expertise. With a
wholesale broker, the insured has the advantage of increased competition for its business through
wider market access, thorough preparation of all pertinent documentation used in the placement
process, and the most cost-effective coverage design.
Conclusion
Insurance is an intensely competitive business, and buyers who demand a strong insurance
placement tenni will secure the best insurance coverage and the broadest terms for the most
attractive price. By the same measure, retail brokers can increase their client's satisfaction by
building a placement team that includes a wholesale placement specialist. Retail brokers who
take a long term, strategic view on how to best meet the needs of insurance buyers will partner
with the right wholesale broker.
Once again, your NAPCO team extends its thanks for the privilege of partnering with Wells
Fargo Insurance Services of Texas, Inc. and John T. Montford Dann/City of Lubbock on this
program. We appreciate all the help and information supplied to us by both Wells Fargo
Insurance Services of Texas, Inc. and John T. Montford Dann/City of Lubbock.
Beyond taking great pride in the program we have negotiated on your behalf, we truly value our
business relationship with Wells Fargo Insurance Services of Texas, Inc. and Jolui T. Montford
Dam/City of Lubbock and look forward in continuing to add value in your Property and
Equipment Breakdown Insurance Renewal Proposal.
Page 10 of 11
TERRORISM
Terrorism Risk Insurance Act of 2002 (TRIA) 1 TRIA Extension Act of 2005 / Terrorism
Risk Insurance Program Reauthorization Act of 2007 (TRIPRA)
The tragic events of September 11, 2001 caused Congress to pass the Terrorism Risk Insurance
Act of 2002 (TRIA). The Act provides that all property and casualty insurers must offer their
policyholders the opportunity to purchase coverage for acts of terrorism, while providing a
temporary program that, in the event of major terrorist attack, allows the insurance industry and
federal government to share losses according to a specific formula. TRIA was signed into law
on November 26, 2002 and renewed again for two years in December 2005. Passage of TRIA
enabled a market for terrorism insurance to begin to develop because the federal backstop
effectively limits insurers' losses, greatly simplifying the underwriting process. TRIA was
extended for another seven years to 2014 in December 2007.
The following describes various aspects of the Act, including amendments incorporated by the
recent TRIPRA:
Under the Act, Insurers are obliged to offer coverage for certified acts of terrorism through
December 31, 2014. We have shown these premiums separately as required under the Act.
♦ An act of terrorism is defined as any act that is certified by the Secretary of the Treasury, in
concurrence with the Secretary of State and the Attorney General of the United States:
1. To be an act of terrorism;
2. To be a violent act or an act that is dangerous to human life, property or infrastructure;
3. To have resulted in damage within the United States or outside the United States in the
case of certain aircraft or vessels, or on the premises of a United States mission; and
4. To have been committed by an individual or individuals as part of an effort to coerce the
civilian populations of the United States or to influence the policy or affect the conduct of
the United States Government by coercion.
♦ No act will be certified as an act of terrorism if:
• It does not meet the above criteria;
• The act is committed as part of the course of war declared by Congress;
• Losses resulting from the act, in the aggregate for insurance subject to TRIA, do not
exceed 55,000,000.
♦ The following are some of the more significant changes in the recent extension of the Act:
• The definition of a certified act of terrorism was revised to eliminate the requirement
that the individual(s) are acting on behalf of any foreign person or foreign interest.
For policies in effect prior to December 26, 2007 with terms ending after
January 1, 2008, insurers are not required to offer the expanded coverage of
"domestic" acts of terrorism.
• Requires clear and conspicuous notice to policyholders of the existence of the $100
billion aggregate cap to policyholders.
• The insurer's deductible remains at 20 percent of an insurer's direct earned premium,
and the federal share of compensation is 85 percent of insured losses that exceed
insurer deductibles.
• The program trigger is at $100 million for all additional program years.
• The industry as a whole must cover a certain amount of the losses through deductibles
and copayments. This amount is $27.5 billion in 2007. If this retention is found to be
below this amount, the federal government can recoup the difference between the
actual amount it paid and the required retention by applying surcharges not to exceed
3 percent of premium.
Insurers do have to comply on policies with an inception date of December 26, 2007 and
forward. The Department does recognize that with the late date of passing the Act, insurance
companies may not have the necessary wordings to address this change and have given them
until March 31, 2008 in order to reach the compliance demanded to meet the Act.
This may result in some late documentation, although all insurance companies are striving to
comply as soon as possible.
Nan- Certified Acts of Terrorism
In order for TRIPRA coverage to take effect, it needs to be certified by the US Government. For
all other acts of terrorism, referred to as "non -certified terrorism coverage," various markets
offering the TRIPRA coverage may also make available "non -certified terrorism," though
usually only if TRIPRA is purchased. As with TRIPRA, pricing and forms vary considerably
from company to company. Some merely do not attach a terrorism exclusion; some have a
special endorsement attached to the policy form.
An alternative that better serves many other Insureds is to purchase a separate and standalone
terrorism policy. There are a number of specialty markets that offer this product, which is often
written on Lloyds of London's T3 form.
The following outlines some differences that may exist between these two programs:
TRIPR4:
• Coverage follows property coverage (limits, deductibles, policy terms, etc.)
• Covers domestic locations only.
• The act of terrorism must not only comply with the TRIPRA definition, but must be
certified by the Secretary of the Treasury, in concurrence with the Secretary of State and
the Attorney General of the United States.
A loss will not be covered under TRIPRA unless losses resulting from the incident, in the
aggregate across all potential classes, exceed M.
International assets will not be included under coverage purchased in the US.
• Can be rated very differently from company to company.
T3 and other Standalone Forms:
• Standalone product with its own terms (policy aggregate, cancellation provisions, etc.)
directly from an insurance carrier.
• The definition of terrorism is stated in the policy form and is the basis as to whether
coverage applies.
• Can cover one location or schedule of locations, including international locations (subject
to exclusion of specific country exclusions where local governments have terrorism
programs already in place).
• Typically, more competitively rated.
• Deductible may not follow the AOP deductible on the property policy.
For additional information on the various options available to your Insured, please discuss with
your NAPCO) team.
NAPCO