A9 ADMINISTRATIVE REPORT Date: March 15, 1995 TO: Vancouver City Council FROM: Director of Risk and Emergency Management and the Risk Management Committee (City Manager, Corporation Counsel, General Manager Corporate Services) SUBJECT: Brokerage and Consulting Services: Property Insurance RECOMMENDATION THAT Council reappoint Marsh & McLennan Limited as the City's broker of record for property insurance for a period of three years, renewable for a further two years at the option of Council. MANAGER'S COMMENTS The City Manager RECOMMENDS approval of the foregoing. COUNCIL POLICY In December 1991 Council resolved that the City's broker of record for its property insurance coverage be reaffirmed or reassigned once every five years following a competitive process. BACKGROUND The broker of record is responsible for placing the City's property insurance and acts as the City's insurance expert in providing a range of related consulting services, including loss prevention inspections, property-related claims administration and analysis, policy interpretation, and advice on such subjects as performance bonds, wording in contracts and leases, and insurance requirements for new acquisitions and projects. On December 12, 1991 Council appointed Marsh & McLennan as broker of record for a period of three years with the option to renew for a further two years. In March 1994, Council extended Marsh & McLennan's broker of record appointment for an additional insurance year, to December 1995. Prior to expiry, the insurance term was extended to March 31 to obtain a more advantageous renewal time for the City. In January 1996 requests for proposal were sent to three major brokerage firms who have expressed interest in the City's business. Two responded and submitted bids.An insurance consultant was engaged to assist in allocating insurance markets and administering the bid process. The cost of this service is approximately $5,000.00, and will be billed across departments as part of the annual insurance premium in 1996. DISCUSSION The City received two proposals, one from A&A Reed Stenhouse and one from the incumbent broker Marsh & McLennan. The major difference between them is cost, with Marsh & McLennan s bid being $237,200 lower than that of A&A Reed Stenhouse. The 1995 annual premium the City paid for its property insurance and related services was $681,696.00. FIRM FEE ANNUAL PREMIUM TOTAL COMBINED A&A Reed Stenhouse $22,500 $873,700 $869,200 Marsh & McLennan $35,000 $597,000 $632,000 The City required that brokers quote on a fixed fee rather than commission basis. This ensures that the broker does not benefit from subsequent increases in the insurance premium. Under the Marsh & McLennan proposal it is estimated that the fixed fee arrangement will save the City $69,000 per year for the next three years,from what it would have paid if this proposal were on a commission basis. The Marsh & McLennan policy term is for a three year period, subject to annual review. This essentially means that if the City's loss experience remains good and market conditions do not change significantly, the rates will remain the same for three years. In addition, if the ratio of losses to premiums is less than 50% at the end of three years, up to 10% of the primary premium will be returned. The two proposals both exceed the City's minimum specifications. While there are differences between the proposed policies, on balance, coverages are generally equivalent or comparable. Both brokers are large, reputable firms. A&A Reed Stenhouse represents a number of other B.C. municipalities. Marsh & McLennan represents school districts, colleges, and hospitals. Both have provided industry ratings and assurances to demonstrate the financial stability of their markets and both offer a broad range of related consulting services to respond to the City's needs. Most organizations, when tendering for insurance, ask brokers to compete only on non-cost items such as coverage, experience, qualifications, scope of services, and financial stability of proposed underwriters. The City is unusual in that, in addition to these criteria, it also requires brokers to actually quote an insurance premium. To do this, brokers must go to the underwriting market and obtain the best price they can for the coverage required. Administering an insurance bid process where cost quotations are required is more complicated since it must be carefully structured and underwriting markets must be allocated to the brokers who are bidding. However staff believe that by virtue of this process the City obtains the best price on its insurance coverage. The current bid process is a good demonstration of this. While most organizations are experiencing increases in their insurance premiums, the City actually stands to see a premium reduction in 1996. CONCLUSION Given the relative equivalency in coverage offered in the proposals and the significant cost savings Marsh & McLennan's proposal offers, it is recommended that Marsh & McLennan Limited be re-appointed for three years, renewable by Council for a further two years. * * * * *