Title: IN4 APPROVAL TO PURCHASE PROPERTY INSURANCE

Recommendation:

I recommend that the School Board approve the purchase of property insurance effective December 31, 2006 to December 31, 2007 at a premium cost not to exceed $16.66 million.

Description:

• The policy will cover $4.75 billion in total property values, with catastrophic policy limits of $140 million. There is a $1.8 billion increase (61%) in total insured values due to the opening of one new school; additions and modernizations to existing schools; an increase in square foot replacement value of approximately 60%; and there is a premium rate increase of approximately 15%.
• The premium also includes projected premium ($100,000) to add two new schools to our schedule when they open next August.  This projected premium would not be paid until the schools actually become the property of the District in August.
• In addition, The District must pay a state assessment to the insolvent Citizens Property Insurance Corporation of 6.84% of our property Insurance premiums resulting in a charge of $1.06 million.  This assessment is included in the total $16.66 million requested in this Board Agenda Item.
• The named windstorm deductible remains at 5% of values at damaged locations subject to a $10 million overall per occurrence minimum.  There is no maximum limit on the named windstorm deductible.  However, the District is exploring additional deductible options in order to entice the insurers to cover losses at reduced loss levels.
• Last year the District chose an all risk minimum deductible of $10 million rather than the previous Self-Insured Retention (SIR) of $10 million.  This change should clarify dealings with The Federal Emergency Management Agency (FEMA), which has denied reimbursing for SIR’s, but considers deductibles to be reimbursable upon the Declaration of a Federal disaster.
• For five years the District has chosen a $10 million deductible or to self-insure the first $10 million of any loss (after the per location deductible) for a total five-year premium savings of $8.5 million.  We again recommend accepting the all risk deductible of $10 million for an estimated savings this year of $3.0 million.
• The District has previously requested and received confirmation from the State Office of Insurance Regulation of the “Reasonableness” of our property insurance program to comply with the Stafford Act requirements from FEMA.  The District will again request this confirmation from the state upon Board approval of this agenda item.
• As of November 17, 2006, at least 3 current carriers in our program have declined or reduced their participation.  If the Broker is unable to replace this lost capacity, the District will have to assume the coverage in those layers or reduce the coverage limits down from $140 million with a corresponding reduction in premium.  If and when market conditions improve, our broker will continue to place carriers into these uncovered portions of our program for a pro-rated premium.
• The Risk Management Department and our Broker (Arthur J. Gallagher & Co.) have analyzed the advantages and disadvantages of “pooling” the District’s property insurance with other entities/pools and do not find “pooling” to be a viable alternative.
• The District and our Broker have also analyzed the advantages and disadvantages of purchasing primary windstorm only coverage from Citizens Property Insurance Corporation.  We do not believe Citizens is an economically viable addition to the property insurance program for the District at this time.. 
• Our broker has contacted more than 50 insurers/reinsurers and assembled a consortium of carriers in order to cover our property insurance renewal. 
• Arthur J. Gallagher & Co. is compensated on a flat fee basis, which will be reduced by any commissions received when a carrier refuses to reduce their premium when not paying commission, as approved by the Board on July 21, 2004.

Financial Impact:

For Additional Information, contact:
Joseph M. Moore (moorej@palmbeach.k12.fl.us) /Dianne L. Howard