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Home My WebLink About07/07/1994, C-3 - EARTHQUAKE INSURANCE I�III�INII�IIIII�II��II�IIIr 7/7 MEETING DATE: c� o san lues oBispo 7 9 94 COUNCIL AGENDA REPORT ITEM NUMBER: .� FROM: Ann Slate, Personnel Director PREPARED BY: Wendy George, Personnel Analyst " SUBJECT: Earthquake Insurance CAO RECOMMENDATION: By motion,reaffirm the City's current policy of self-insuring property loss due to an earthquake. DISCUSSION The City's current property insurance coverage excludes any losses as a result of an earthquake, as has our property coverage for many years. At some point a decision was made that it would not be cost effective to purchase additional insurance to cover potential earthquake damage, and so the City has remained self-insured for this type of loss. Staff is requesting the City Council to reaffirm the City's current policy of not insuring the City's property for losses due to an earthquake. During the past several years, the City has undertaken a program to reinforce any of its unreinforced masonry buildings. Since the Dana Adobe and Black Residence are exempt from requirements to make seismic corrections, and Fire Station 1 will be replaced with the new fire station currently being designed, none of them will be reinforced. At this time only the San Luis Obispo County Museum building and the Murray Adobe still remain to be reinforced, along with the City Hall roof. While the structural improvements will hopefully lessen damage should a quake occur, they will not eliminate it completely. Therefore, after observing the results of the recent Northridge earthquake, we felt that it was appropriate to reconsider the decision to self- insure for earthquake damage. We requested that the City's insurance advisors and brokers, Sedgwick of California, obtain quotations for us on the cost of purchasing earthquake insurance. Based on our total property values of$54.5 million, the best quotation they could bring us was for a two-layered program with a deductible of 5% of the Total Insured Value of buildings for earthquake and flood damage and $25,000 for other perils. The first layer would be for up to$2.5 million per occurrence and annual aggregate and the second layer would be pp to $7.5 million per occurrence and annual aggregate. The cost of each layer would be $75,000 a year for a total cost of $150,000 per year. Sedgwick does not feel that it would be cost effective to purchase the proposed policies. They have indicated that very few cities our size are purchasing earthquake insurance, and specifically, none of the cities in either our own JPA or a northern California JPA they also �!ih�►bNIIIIIINIIIIII ��Ill city Of San WIS OBISPO COUNCIL AGENDA REPORT represent are making such purchases. In most of the cases where larger cities are purchasing earthquake insurance they are doing so because it is required by their bonding agreements, which is not our situation. Staff agrees with Sedgwick that earthquake insurance is not essential. However, Council should be aware that we are assuming an unknown financial risk should a major earthquake occur locally. This is a risk both staff and Sedgwick are comfortable assuming. If some of the City of San Luis Obispo's buildings were to be damaged due to an earthquake the City would be eligible for financial recovery through the federal government's FEMA program. While it is difficult to anticipate exactly what the recovery would be, as programs change over time, the Finance Department is familiarizing itself with the reporting requirements of the FEMA program and should be able to guide the City through the paperwork necessary for the best possible recovery. FISCAL EMPACT By continuing our practice of self-insuring for earthquake insurance, the City will avoid having to pay an annual premium of $150,000. However, we assume an unknown financial risk that all our potential losses would not be covered by the FEMA program. ALTERNATIVES 1. Purchase the insurance on the terms indicated above. 2. Ask Sedgwick, or another broker, to seek additional quotations. It is unlikely that better terms will be found with other insurance companies of equal financial soundness, as Sedgwick is a major company with wide access to the insurance market and they used their resources as part of the original search. Attachment: Copy of insurance quotation. MAY-05-1994 16:27 FROM Sedgwick James — 9th fir TO 18055429857 P.01 Sedgwick Sedgwick James of California,Inc. PO Box 7601, San Francisco, California 941204601 May 5, 1994 Telephone 415 983.5000. Telex 820236. F2caimile 41.r 398-1341 Ms. Wendy George City of San Luis Obispo 990 Palm St. San Luis Obispo, CA 93403 Via Facsimile (805) 542-9867 DIC PROPERTY QUOTATION INCLUDING EARTHQUAKE,,FLOOD AND EQSL Dear Wendy: This quotation is valid until May 28, 1994. The quotation is as follows: PROPERTY COVERED: Buildings, Contents, EDP/Media VALUES AT RISK: $549519,449 PERILS INSURED: Difference in Conditions,including Earthquake,Flood and EQSL LII1i r OF LIABILITY: 1st Layer: $2t5009000per occurrence and annual aggregate 2nd Layer: $7,500,000per occurrence and annual aggregate DEDUCTIBLE: Earthquake and Flood: 5% of TIV per Buidling All Other Perils: $25,000 Minimum Deductible: $25,000 ANNUAL PREMIUM: 1st Layer: $75,000 2nd Layer: $75,000 + $100 Company Fee CARRIERS: 1st Layer: New York Marine and General Best rating: A+ VIII Admitted in CA 2nd Layer: RLI 50% A VIII Admitted in CA ROYAL Insurance A XI Admitted in CA Please let us know as soon as possible if you would like to bind coverage. Sincerely, t/�IlinKelley*lr Public Entity Group (415) 983-5174