Item Q7 Q.7
County f � .�� ",�, 1 BOARD OF COUNTY COMMISSIONERS
Mayor Craig Cates,District 1
Mayor Pro Tem Holly Merrill Raschein,District 5
The Florida Keys
Michelle Lincoln,District 2
James K.Scholl,District 3
David Rice,District 4
County Commission Meeting
May 17, 2023
Agenda Item Number: Q.7
Agenda Item Summary #12105
BULK ITEM: No DEPARTMENT: County Attorney's Office
TIME APPROXIMATE: STAFF CONTACT: Brian Bradley (305) 295-3177
N/A
AGENDA ITEM WORDING: Ratification of changes made to the Marsh USA primary property
policy.
ITEM BACKGROUND: Risk Management staff seeks the Board's ratification of changes
made to the current named storm insurance policy within the County's property insurance policy,
which has had the effect of lowering this year's cost from $5,195,508 to $3,778,391 by utilizing a
hybrid of traditional windstorm and parametric windstorm policy. Risk staff will make a
presentation on the changes. There is no change to the fundamental property insurance except
that maximum amount per claim has been lowered. With respect to storm (which includes wind
and flood), significant savings were achieved by moving from the prior group of policies, which
included $10 million through a traditional program, to a program which includes $5 million from
a traditional carrier and $5 million from a parametric program. With parametric insurance, the
policy is intended to cover any economic loss caused by named windstorms. Coverage is
triggered in the event of maximum sustained wind in a specified location. In this case, the
coverage would be triggered if windstorms of 96 mph(Cat 2) or more occur; higher payouts
occur with higher windspeed and depending on location. Parametric insurance pays from dollar
zero (no deductible), which is another advantage over traditional insurance.
This presentation will include a set of recommendations related to the County's existing policies
that are related to these issues and seek further direction from the Board.
CONTRACT/AGREEMENT CHANGES:
Presentation
STAFF RECOMMENDATION: Approval.
DOCUMENTATION:
Evaluation Letter
Packet Pg. 2733
Q.7
01 Monroe County Final Program Structure cost vs 1 Om and 5m traditional storm
02 Monroe Schematic 5m wind full breakdown
03 Monroe Schematic 10m wind full breakdown
04 Monroe County Final Program Structure 5M with parametric
Parametric Image overview
FINANCIAL IMPACT:
Effective Date:
Expiration Date:
Total Dollar Value of Contract:
Total Cost to County:
Current Year Portion:
Budgeted:
Source of Funds: N/A
CPI: N/A
Indirect Costs: N/A
Estimated Ongoing Costs Not Included in above dollar amounts: N/A
Revenue Producing: No If yes, amount:
Grant: No
County Match: No
Insurance Required: No
Additional Details:
09/21/22 503-08502 - RISK MGMT INSURANCE $3,778,391.00
REVIEWED BY:
Cynthia Hall Completed 05/02/2023 4:46 PM
Brian Bradley Completed 05/02/2023 4:50 PM
Bob Shillinger Completed 05/02/2023 5:00 PM
Purchasing Completed 05/02/2023 5:02 PM
Budget and Finance Completed 05/02/2023 5:05 PM
Brian Bradley Completed 05/02/2023 5:06 PM
Lindsey Ballard Completed 05/02/2023 5:08 PM
Board of County Commissioners Pending 05/17/2023 9:00 AM
Packet Pg. 2734
Q.7.a
InteriskCorporation Risk Mgt.&Employee Benefits Consultants
1101 Red Maple Circle N.E.,St. Petersburg, Florida 33703-6318 — telephone: 813-287-1040
www.interisk.net
April 27,2023
Brian Bradley RMLO,FCRM
Risk Manager
Monroe County Attorney's Office 2
1111 12th Street, Suite 408
Key West,FL 33040
Subject: Property/Boiler and Machinery Renewal
Brian,
The County's Property coverage expires on May 1,2023. In addition,the County's Boiler and Machinery coverage
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also expires on May I". The Boiler and Machinery coverage is provided through a separate policy issued by the U)
Hartford Steam Boiler Inspection and Insurance Company with limits of$100 million and a per incident deductible
of$5,000 except for damage to Air Conditioning and Refrigerating Equipment which has a$25.00 per HP
deductible(Minimum$5,000). Hartford Steam Boiler enjoys a favorable rating from the AM Best Company,the
leading evaluator of insurance company operations. The annual premium for the expiring coverage is$13,290. It CL
should be noted that the County's Boiler and Machinery exposure is considerably less than the$100 million limit. It
is common for Boiler and Machinery insurers to offer limits considerably higher than the exposures. The coverage
is being primarily purchased to obtain State required inspections of 4 pressure vessels located at the Detention
Center on Stock Island. U)
The Property program includes coverage for:
M The County's Buildings and Contents
0 The County's Mobile/Contractors Equipment
0 The County's EDP Equipment
0 The County's Communication Towers and Equipment z
M The County's EMAS system at KWIA
The program is segregated into 2 layers. Following displays the structure of each layer when the 2021/22 program
was initially bound. Throughout the year properties have been added and deleted from the Program.
Layer 1 (Includes Named Storm Wind and Flood Coverage)
Annual Total Layer Total Layer >
Insurer Limits Provided Premium Limits Premiums
$2,500,000 part of
Lloyds of London $5,000,000 $292,500
Steadfast Ins. Co, $2,500,000 part of $300,000
$5,000,000
Sompo $5,000,000 $450,000 $10,000,000 $1,954,500
International
Westchester
Surplus Lines Ins. $5,000,000 $912,000
Co.
Layer 2 (Excludes Named Storm Wind and Flood Coverage)
Landmark $256,958,616 excess of$10 $102,465 F$256,958,616 $102,465
American Ins. Co. million
Total Pro am
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$266,958,616 $2,056,965
Packet Pg. 2735
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The program is subject to the following deductibles.
Property/Peril Amount
Building&Personal
Property $50,000
Named Windstorm $1 million
EDP Equipment&Media $5,000 except$50,000 for wind
Contractors Equipment $5,000 except$50,000 for
wind
$5,000 except $50,000 for
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Communication Towers
wind
5%of TIV at each location,
Flood subject to$1 million per
occurrence
Boiler and Machinery $5,000
All of the insurers participating in the expiring program enjoys a favorable rating from the AM Best Company. 2
Marsh USA serves as the County's agent/broker for the coverages. Marsh is the largest insurance broker in the CL
world and has the technical expertise to respond to the County's needs.
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Before I discuss the renewal a few comments regarding the state of the insurance industry,particularly the Property
Insurance Industry are needed. There were 449 mergers and acquisitions of insurance companies in 2022. This
followed 418 mergers/acquisitions in 2021. These mergers and acquisitions resulted in significant staff reductions.
In addition,there are fewer insurers to structure complex programs such as the County's Property Insurance
Program. The County's current program consists of 5 different insurers. This has significantly increased the time it U)
takes agents/brokers to structure complex insurance programs. Property insurers are not even looking at
submissions until they reach 30 days of the requested effective date. Not only is it taking longer to arrange for the
insurance,the cost of it is significantly increasing. One of the reasons for the increases is the lack of competition
that has resulted because of the mergers and acquisitions. In addition,several factors have contributed to the
increase.
M
Catastrophe Lasses
Hurricanes, floods, wildfires, tornadoes,winter storms. The frequency and severity of major catastrophes
continue to stress the industry. In five of the past six years, these events have caused annual insured losses of g
more than$100 billion globally Last year, total insured losses globally were estimated at$140 billion.
Reinsurance
Insurers limit their exposure by purchasing reinsurance and transferring a portion of the risk to other insurance a
companies. Catastrophic events are a major factor driving up the cost of reinsurance. At the same time,
inflation and the economic environment has been making reinsurers more selective. In early 2023 the gap �
between reinsurance supply and demand was estimated at$60 billion, three times what it was the previous fall.
Mergers and acquisitions have left fewer reinsurers for primary insurers to select from.
Packet Pg. 2736
Property Replacement Costs
Recent inflation has driven the cost of construction materials and services much higher. For example, over the
past 3 years the cost of structural steel has increased by 55% and the price of lumber has increased by 35%.
Similarly, machinery and equipment costs have increased 18% over the same period This has led to significant
increases in an Insured's Statement of Values, which is the leading factor in determining premiums for
Property insurance.
Property Rates
The premiums for most Property programs are developed by multiplying the insurable values by u"m1e"
developed by the imsorcr(s). For years, escalating loss trends have outpaced rate increases,primarily because �
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of the costs of catastrophes, severe weather and large fires. c
In accordance with the County's Purchasing protocols,a Request for Proposals(RFP)was posted on Demand Star
for the County'o Property/Boiler and Machinery coverage on December 7.2023. Provisions were made for �
interested proposers to submit Requests for Additional Information through February 16,2023. /bn addendum tothe CL
DFP was posted on Demand Star responding to the requests received. The bid opening was scheduled for March|6.
2023. The County did not receive any responses to their RFP. While it was not expected to receive numerous
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proposals it was anticipated to receive a proposal,at least from the incumbent agent/broker(Marsh). When Marsh
was contacted after the bid opening they advised that insurers(particularly Property insurers)are not releasing their
proposals until 30 days oI the expiring date oI the current program. Recognizing that the County could not operate
without Property insurance,the bid opening was rescheduled for March 30.2023. Marsh was the only agent/broker
that submitted uquuai1unpoaul It It �
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are working with the market and expected to have u formal proposal sometime early to mid-April and the cost oI
replicating the expiring program may approach$5 million. While an increase in the premium was anticipated,an
increase oIover |00%was not. Marsh was instructed touxploruopdozmthatvillmudicu|uthebncruuau. They +^
committed to provide various options.
� �|0 million Wind/Flood|bni o wdhAUP(All Other PocUo)hm�oequal W the Coun�'oTotally M
limits,Insurable Values)(T|Va). This option replicates the current program. z�
� $5 million Wind/Flood limits,with AUP limits equal W the County'o(T|Vs). �
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� $50 million limit for AOP losses paired with a Parametric option of$10 million with varying
attachment points.
� $50 million limit for AOP losses paired with a Parametric option of$5 million with varying >
attachment points.
Parametric insurance is a relatively new form of insurance that bases its coverage on wind speed(expressed by
category oI the storm)rather than the physical damage to insured property.
Discussions were held on purchasing coverage without any Wind and Flood coverage and purchasing a separate —
wind and flood only policy for locations that had previously received FEMA Assistance for prior losses. FBM/\
requires that locations that previously received FEMA Assistance be insured for the types of losses resulting in the
Assistance with limits equal to the damages the location previously experienced. This type oI insurance iaoften
called"Obtain and Maintain" (U&dN)insurance. Marsh advised that such insurance io extremely expensive and
based on the FEMA Assistance the County has previously received the cost of this option would be cost prohibitive.
Marsh submitted two options for consideration. Option| replicates the expiring policy while Option 2 reduces the
Named Windstorm and Flood limits(currently$|0 million)to$5million. The terms and conditions oI both options
Q.7.a
are consistent with the expiring program. However,the Flood deductible for the expiring program is 5%subject to a
$1 million minimum. This is being changed to a flat$1 million deductible.
Option 1 will consist of 3 layers,
➢ Primary$10 Million
➢ $40 Million excess of$10 Million
➢ $233.9 Million excess of$50 Million.
Option 2 will consist of 4 layers,
➢ Primary$5 Million "
➢ $5 Million excess of$5 Million
➢ $40 Million excess of$10 Million
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➢ $233.9 Million excess of$50 Million.
The$233.9 Million layer consists of 2 different insurers. One insurer is charging$100,000 for the coverage and the
other is charging$130,000 for their coverage. This$130,000 premium could be saved if the AOP limit is reduced to
$50 million. The likelihood of experiencing an AOP loss that approaches$50 million is remote. I would support C
reducing the County's AOP limit to $50 million.
In an effort to balance the premiums and exposures,it is understood that the County has selected Option 2 that
provides$5 million of Named Windstorm coverage and supplements the wind and flood coverage with a Parametric
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Insurance Policy with overall limits of$5,000,000. Depending on the size of the storm and where in the County the a�
eye of the storm passes a percentage of the overall policy limit is paid. The payout is prompted solely on the size of
the storm and where the eye crosses the Keys. I support this decision. C
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Please give me a call if you have any questions or wish to discuss this issue in more detail.
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Cordially,
INTERISK CORPORATION
/3
Sidney G.Webber
CPCU,ARM
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THE COST OF INSURANCE IN 2023
Actual Costs for program
2022 PRIMARY PROPERTY POLICY
TRADITIONAL 10 MILLION NAMED STORM COVERAGE
$1,979,480
2023 PRIMARY PROPERTY POLICY
TRADITIONAL 10 MILLION NAMED STORM COVERAGE
$5,195,083 (162.44% INCREASE)
THE COST OF INSURANCE IN 2023
Policy cost Breakdown
2023 PRIMARY PROPERTY POLICY
TRADITIONAL 10 MILLION NAMED STORM COVERAGE
$5,195,083 (162.44% INCREASE)
BASED ON THE $10M WIND/FLOOD OPTION, PREMIUM IS AT $5,080,836 INCLUDING BOILER & MACHINERY.
BASED ON THE $5M WIND/FLOOD OPTION, PREMIUM IS AT $3,130,836 INCLUDING BOILER & MACHINERY.
BASED ON THE $5M WIND/FLOOD OPTION, WITH $5M PARAMETRIC
$4,130,836
BASED ON THE $5M WIND/FLOOD OPTION, WITH $5M PARAMETRIC ($50M TO $260M PROPERTY LAYER REMOVED)
$4,000,836
BASED ON THE $5M WIND/FLOOD OPTION, WITH $5M PARAMETRIC (ACTUAL PRICE AFTER BINDING)
$3,778,391 (90.87% INCREASE)
Monroe County Parametric NWS
hliffia�� Covel'age Rl-oposa�s - (.`.at-In-Bo)( ((�OB) - Opfio�l'is & I
Payout Structures-%of Occurrence Limit
Option CIB-1 Red(Key West) Green Blue
I um flv� <=Cat 1 0% 0% 0%
Cat 2 20% 0% 0%
Cat 3- 40% 20% 5%
Cat 3+(120.5<=Vrndx
<130.0,
(955.0--CP>945.0) 60% 30% 10%j
Cat 4-(130.0<=Vrnax<
143.5,
(945.0>-C:P>932.5) 80% 40% 20%
C:at 4+(143.5<-Vrnax
,,, 157.0,
,(932.5>=CP>920.0) 100%. 50%. 30%
ICat 5 1 100%1 60%1 40%
Payout Structures-%of Occurrence Limit
Option GIB-2 Red(Key Westl Green Blue
<-Cat 1 0% 0% 0%
Cat 2 0% 0% 0%
Cat 3- 25% 15% 5%
Cat 3+(120.5<-Vrnax
<130.0,
(955.0>=CP>945.0) 50% 25% 10%
Cat 4-(130.0<=Vrnax
<143.5,
(945.0>=CP>932.5) 80% 40% 20%
Cat 4+(143.5<-Vmax
<157.0,
(932.5>=CP>920.0) 100% 50% 30
Cats 100% 60% 40%
4 Coverage is triggered if(based on National Hurricane Center public data):
a Named Windstorm (NWS) crosses one or more boxes, and
NWS Category is above thresholds listed in the payout table
THE COST OF INSURANCE IN 2023
Why Parametric as a supplement?
TRADITIONAL NAMED STORM COST INCREASE
$1,000,000 FOR EVERY $5m IN STORM COVERAGE
TO
$2,500,000 FOR EVERY $5m IN STORM COVERAGE
STRENGTHS WEAKNESSES
HAS NO DEDUCTALE THE LIMIT IS ALSO THE AGGREGATE
QUICK PAY TIME PAYOUT IS BASED ON STRIKE ZONE
NO PRICE INCREASE IN THE LAST THREE YEARS UNKNOWN IF MEETS FEMA OBTAIN AND MAINTAIN
THE COST OF INSURANCE IN 2023
What to do going forward
LOOK AT SELF INSURANCE FOR NAMED STORM COVERAGE
REVIEW BUILDINGS AND DETERMINE IF WE NEED CITIZENS COVERAGE