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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