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.
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