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sr-062612-3cCity Council Meeting: June 26, 2012 Agenda Item: IaL- To: Mayor and City Council From: Gigi Decavalles- Hughes, Director of Finance Subject: Professional Services Agreement for Property Insurance Brokerage Services Recommended Action Staff recommends that the City Council authorize the City Manager to negotiate and execute a professional services agreement with Alliant Insurance Services, Inc., a California based company, in the amount of $360,000 over a five year period for property insurance brokerage services. Executive Summary The City has an ongoing need for professional property insurance brokerage services to underwrite, market, and secure its property insurance coverage. This type of insurance protects the City's buildings and vehicles, valued at over $800 million, from the perils of fire, flood and /or earthquake. The City's current property insurance broker agreement is set to expire at the end of this fiscal year, and in preparation for this, staff solicited and received proposals from three brokerage firms. A panel of City staff subsequently evaluated each firm's proposal and determined that Alliant Insurance Services, Inc. provided the most responsive bid. The panel recommends the City pursue a five year contract with this firm at a cost of $360,000. Background Alliant Insurance Services, Inc. has served as the City's property insurance broker for the last twenty years. The City has maintained this long standing broker relationship with Alliant because it offers access to the Public Entity Property Insurance Program ( PEPIP). PEPIP was developed specifically to meet the unique needs of public entities and possesses a variety of advantages that cannot collectively be matched by traditional property insurance products on the market. The City has participated in PEPIP since its inception in the mid -1990s and can only continue to do so as a client of Alliant (i.e., PEPIP is an Alliant program only offered to Alliant clients). 1 The City's current property insurance broker agreement with Alliant is set to expire in July 2012 (see ARM 10.2007 staff report). In preparation, staff surveyed the marketplace again to determine if any competitors to PEPIP have emerged since the last Request for Proposal (RFP) was circulated in 2007. This process did not yield any viable prospects. Staff is once again recommending the City continue to contract with Alliant for property insurance brokerage services. Discussion The City uses a professional property insurance brokerage firm to procure its property insurance coverage. This is advantageous for two reasons: 1) it ensures the City has access to the broadest range of high quality insurance coverage at the most competitive price, and 2) it provides the City with access to property insurance markets only available to professional brokers (e.g., earthquake coverage for City facilities, wave- wash coverage for the Pier, etc.). The broker is responsible for all aspects of procuring property insurance. This includes everything from evaluating the City's property insurance program and recommending alternatives to address changing coverage needs, to developing and marketing the program to insurers capable of meeting the City's needs and securing coverage on behalf of the City. Consultant Selection A Request for Proposal (RFP) for property insurance brokerage services was posted on the City's online bidding website in December 2011. Three brokerage firms submitted responses to the RFP. A City panel composed of Finance Department and Housing and Economic Development Department staff evaluated the proposals on the basis of experience, qualifications, references and cost. After reviewing the proposals and holding telephone interviews, the panel determined that Alliant Insurance Services, Inc. submitted the most responsive bid and was best suited to meet the City's ongoing property insurance needs. 2 The panel acknowledged that Alliant's proposal was the most costly. However, the panel felt that Alliant's qualifications and proven experience with delivering cost - effective property insurance programs justified the firm's fees. Alliant is considered a leader in the public entity insurance industry and is responsible for designing the Public Entity Property Insurance Program (PEPIP). Most cities and counties in California participate in PEPIP; the program annually insures over $300 billion worth of public entity property across the country. The advantages of PEPIP are many. For example: • PEPIP's market share and strength can almost always ensure the City will obtain the best coverage at the most competitive price. Further, size and strength allow PEPIP to better weather market swings and continue to secure difficult, but much needed, high risk property coverage (e.g., wave -wash coverage for the Pier). • PEPIP provides ample policy limits ($1 billion) and low deductibles ($25,000 per occurrence) to cover property losses sustained by the City. Further, it provides up to $50 million in policy limits to cover earthquake losses and will replace the Pier should it be destroyed by storm damage. • PEPIP provides more comprehensive coverage than traditional property insurance policies in a variety of valuable areas (e.g., business interruption insurance is provided for a longer timeframe, builders' risk insurance is provided at no cost for projects valued at $25 million or less, errors and omissions insurance is provided to cover losses when buildings are inadvertently left off the property schedule, etc.). • PEPIP provides insurance premium discounts to entities with excellent loss records (of which the City is one). Q In short, the panel concluded that Alliant is best positioned to continue to offer the broadest property insurance coverage at the best price. Further, the two competing firms failed to demonstrate to the panel's satisfaction that they could procure property insurance comparable in coverage and cost to the City's current program. This suggests that any short term savings yielded by contracting with one of the two less costly brokers would be offset many times over by higher property insurance costs or the loss of important property coverage. Given these factors, the panel recommends the City continue to contract with Alliant for property insurance brokerage services. Financial Impacts & Budget Actions The agreement to be awarded to Alliant Insurance Services, Inc. is $360,000 over five years. Funds in the amount of $68,000 are included in the FY2012 -13 budget in account 56232.555060, which is pending Council approval. Budget authority for subsequent years will be requested in each budget cycle for Council approval ($70,000 for FY2013 -14; $72,000 for FY2014 -15; $74,000 for FY2015 -16; and $76,000 for FY2016 -17). Future funding is contingent on Council approval. Prepared by: Deb Hossli, Risk Manager Forwarded to Council: El Rod Gould City Manager Reference Contract No. 9608 (CCS)