Subject: AGREEMENT WITH WILLIS INSURANCE SERVICES OF CALIFORNIA,
INC.
Adoption of a resolution authorizing the City Manager to take the necessary actions to replace Arthur J. Gallagher & Company, the City’s insurance broker, with Willis Insurance Services of California, Inc., to provide insurance brokerage services through June 30, 2007.
BACKGROUND
In March, 2002 the City received six (6) responses to the RFQ for insurance broker services. The City’s Risk Management consultant, Advanced Risk Management Techniques, Inc. and the Evaluation Committee consists of representatives from the Finance, Airport and Public Works Departments, City Attorney’s Office, and the Redevelopment Agency thoroughly evaluated the proposals, completed analysis and three of the top brokers were invited to oral interviews. Based on this review process, the Evaluation Committee recommended that the City proceed with the selection of Arthur J. Gallagher and Company as the City’s Insurance Broker.
On May 20, 2002 City Council authorized the City Manager to
enter into an Agreement with Arthur J. Gallagher & Company (“Gallagher”)
for insurance brokerage services beginning March 26, 2002 through June 30, 2005
with two additional one year options.
Gallagher was selected based on the
professional background and experience of the Executive Management Team. Their management approach ensures senior
management remains closely involved in the business on a day-to-day basis. The
Team’s past experience with the City on the property schedule of insurance, and
Risk Management specialties, such as risk transfer, risk review, claims review,
ability to attend meetings as needed, and assistance in resolving insurance
related matters were key components of their selection.
A key provision in the Agreement with Gallagher is that the City may terminate the Agreement immediately, at the City’s option, if there is a material change in the management team responsible for the City’s overall insurance program. A material change has occurred; two Executive Managers specifically named in the Agreement and their support team have left Arthur J. Gallagher and moved to Willis Insurance Services of California (“Willis”) as of Friday, April 4, 2003. The two Executives have been involved in the City’s insurance programs for several years and are relocating their offices to San Jose in order to better service their local clients, and serve and support the community in which they work.
Given the distressed state of the insurance industry, and the diverse nature of the City’s and the Redevelopment Agency’s insurance portfolio, it is critical that the City and the Redevelopment Agency maintain a consistent Executive Management Team to effectively represent the City in the insurance marketplace.
Terminating the Agreement with Arthur J. Gallagher as a result of this material change to the management team servicing City’s and Redevelopment Agency’s account, and executing a new Agreement with Willis Insurance Services of California will allow the City and the Redevelopment Agency to continue to conduct business as originally planned, and allow the City to enter the insurance marketplace effective on May 1, 2003 for our July 1, 2003 insurance renewals with the same executive management team in place. The City has provided notice to Gallagher of our intent to terminate the Agreement. The termination date of the Gallagher Agreement will be effective the commencement date of the Agreement with Willis. The estimated effective date is April 23, 2003. This action does not impact the Builder’s Risk Policy the City currently has in place for the new Civic Center. Gallagher remains the broker of record for that insurance policy.
The insurance industry is based on relationships and the
effective relationship between the client (the City) and their Broker
(Executive Management Team), and the insurance carriers and the Broker
(Executive Management Team) currently in place ensures a seamless delivery of
timely services to the City and to the Redevelopment Agency. In the current market environment these
relationships are invaluable and could mean the difference between an insurance
carrier declining to participate on the City’s and Redevelopment Agency’s
insurance program and having several insurance carrier options to choose
from. Most importantly, maintaining the
continuity of the Executive Management Team enables the City and Redevelopment
to secure the best coverage for their premium dollar spent.
Over the past two years the insurance industry has been in crisis. Dealing with the terrorist attacks of 9/11/01 and the losses that ensued, the government’s requirements that insurance carriers now offer some level of terrorism coverage, the stock market decline, and past underwriting losses have led to many insurance carriers closing their doors, or changing the way they underwrite their insurance coverage. As part of the process of binding insurance coverage for FY 2002-03, insurance carriers were not willing to retain the same retention levels as in past years. As a result, the City reduced its property limit from $1 billion to a $500 million property limit. Many carriers will not issue policies for entities the size of the City without a minimum deductible of $100,000, which is currently the deductible carried by the City of San José.
The City of San José and the Redevelopment Agency is a large, complex, and diverse organization with a variety of risk management and insurance needs. The City is self-insured for its liability and workers’ compensation exposures, however we do purchase a number of insurance policies to protect other city exposures. Some of these policies are: Fire Insurance for all City owned facilities, Medical Malpractice, Police Officers Secondary Employment Liability, Police Air Support Liability, Airport Liability, Airport Shuttle Bus, and a number of builders’ risk policies during construction for new libraries and community centers coming on line. The Redevelopment Agency currently purchases Liability, Excess Liability and property insurance.
In order to continue the existing state-of-the-art risk management and insurance brokerage services required to appropriately and cost effectively identify and manage the City’s and the Redevelopment Agency’s insurance needs, the City and the Redevelopment Agency needs to continue its relationship with the Executive Management Team.
This team’s service to the City includes:
· Working with the City since 1993 producing excellent results
· Providing a team of professionals experienced in managing the insurance issues faced by the City and other large public entities
· Advising the City on numerous risk management issues including FEMA, terrorism, and claims administration
· Securing coverage on behalf of the City during the most distressed insurance marketplace in recent history
· Accessing the global insurance marketplace on the City’s behalf
Willis Insurance Services of California, Inc. is a highly technical, international risk management services firm with a strong commitment to excellence. They represent over 200 public entities on a national basis. Willis Insurance Services of California, Inc. transacts business in the worldwide insurance marketplace on a daily basis, transferring over $17 billion in premium on an annual basis. Their management approach ensures senior management remains closely involved in the business on a day-to-day basis.
In addition to Executive Management Team consists of Carl Smith and Tim McGrath who will work on the City’s account, several key members of the Willis Team have worked successfully and effectively with the City of San José for a number of years producing excellent results. These efforts include the City’s new Owner Controlled Insurance Program (OCIP) program on the New Civic Center project, providing the City with their insurance construction expertise.
As was the case with the Agreement with Gallagher, in addition to the procurement of insurance coverage, Willis Insurance Services of California, Inc. will provide ongoing risk management services including issuing an Annual Report, provide recommendations on insurance coverages presently not purchased by the City and the Redevelopment Agency, review and analyze loss exposures, provide assistance with difficult or disputed claims.
Preserving the continuity of the management team assigned to the City’s and Redevelopment Agency’s account, will allow for the Finance Department to present to City Council for their review and approval the insurance premium and coverage renewal options for the City policy period of July 1, 2003 to July 1, 2004 by June 24, 2003. If the City were to utilize a new Management Team for the insurance renewal process for FY 2003-04, the City’s ability to meet our July 1, 2003 renewal date would be severely impaired.
Not applicable.
Not a project.
COORDINATION
This report has been prepared by the Finance Department in coordination with the City Attorney’s Office, Airport Department, Planning, Building and Code Enforcement Department, and the Redevelopment Agency.
There will be no cost to the City related to this change in company providing insurance broker services to the City. The Agreement with Willis Insurance Services of California, Inc. will be under the same terms and conditions as the Agreement with Arthur J. Gallagher & Company.
SCOTT P. JOHNSON
Director, Finance Department