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HomeMy WebLinkAbout6. MANAGERS REPORT 12/21/04 MEMORANDUM Village of Mount Prospect Community Development Department DATE: DECEMBER 14, 2004 REQUEST FOR FACADE REBATE AND INTERIOR REIMBURSEMENTS - MAIL A BOX - 301 W. CENTRAL ROAD TO: FROM: MICHAEL E. JANONIS, VILLAGE MANAGER WILLIAM J. COONEY JR., DIRECTOR OF COMMUNITY DEVELOP ENT SUBJECT: BUILDOUT The Village has established a Façade Rebate Program and an Interior Buildout Program in the downtown Tax Increment Financing District. These programs offer matching grants to businesses that make improvements to storefronts in the downtown district. The maximum Village contribution is $5,000 per program. Mail A Box recently renovated their storefront at 301 W. Central Road to establish a new retail location. They made several modifications to the interior of the building to improve the functionality of the space. These improvements included installing a side entrance on Elmhurst Avenue, upgrading the electric service, installing new bathrooms, replacing the air conditioning units, and installing new carpeting. They also have installed new awnings on their Central Road and Elmhurst Avenue facades. The total expenditures for their project have exceeded $80,000. Mail A Box is seeking reimbursement for all eligible expenses related to their project. Per the program guidelines, the Village may cover 50% of all eligible costs for each component of this project. Therefore, they are eligible for a $5,000 Interior Buildout grant (account # 5507703-590053, page 298 of Budget) and a $5,000 Façade Rebate grant (account # 5507703-590052, page 298 of Budget). Staff supports the request for these reimbursements. Please forward this memorandum and attached Ordinance to the Village Board for their review and consideration at their December 21 st meeting. Staff will be at that meeting to answer any questions related to this matter. L¡ lJ.J 0 ~. ~ .. n (D ~ M-- ~-1 ~ F:""""""- Buildout Costs 301 West Central NOT Final Electrical labor Electrical Parts locks labor labor Contractor Contractor Building Permit Plumbing Parts Masonary Carpet & Ceiling Tile Trash container Glass Doors labor labor Contractor HVAC Contractor labor HVAC labor Contractor HVAC labor Electrical Architects Glass Doors Contractor labor HVAC Electrical Fixtures Demo Permit, Insp. Bond Contractor Electrical Parts Architects Contractor labor Architects labor locks locks Parts Awnings Awnings Bathroom Vanity Awning Permits Amount $ 2,598.75 $ 500.00 $ 162.12 $ 325.00 $ 500.00 $ 500.00 $ 700.00 $ 4,300.00 $ 612.50 $ 408.32 $ 3,200.00 $ 1,500.00 $ 275.00 $ 4,381.00 $ 500.00 $ 1,000.00 $ 2,700.00 $ 135.00 $ 2,500.00 $ 1,000.00 $ 550.00 $ 500.00 $ 5,000.00 $ 1,912.00 $ 1,000.00 $ 2,086.17 $ 2,816.16 $ 2,000.00 $ 5,000.00 $ 500.00 $ 1,500.00 $ 700.00 $ 600.00 $ 1,000.00 $ 550.00 $ 612.54 $ 1,250.00 $ 1,000.00 $ 792.00 $ 1,250.00 $ 396.00 $ 1,000.00 $ 200.00 $ 973.40 $ 4,000.00 $ 5,900.00 $ 400.00 $ 1,000.00 Check Payable 6125 Ralph Falco 6124 Mircea 6120 M/C 6112 Jonathan Bean 6111 Mircea 6107 Mircea 6106 Sergio Vazquez 6105 lVP 6084 Village of Mt Prospect 6102 M/C 6088 JOR Construction 6028 Adam Fishman, Ben Curtis 6025 Onyx 1033 Capitol Glass 1031 Mircea 1030 Mircea 1029 Sergio Vazquez 1028 Jobber 1027 LVP 1026 Mircea 1 025 Jobber 1024 Mircea 1023 lVP 1022 Jobber 1021 Mircea 1020 Ralph Falco 1019 Alexander & Associates 1018 Tomas Tyrcha 1017 lVP 1016 Mircea 1015 Jobber 1014 Steve Heinrich 1013 500 refund due 1012 Sergio Vazquez 1011 Ralph Falco 1010 M/C 1009 Alexander & Associates 1008 Sergio Vazquez 1004 Piotr Opoka 1002 Alexander & Associates 1003 Piotr Opoka Jonathan Bean Jonathan Bean 2 M/C 6132 Hunzinger Williams unpaid Hunzinger Williams Ikea $700 refund due $100 to be reimbursed L' Alarm Misc Cash Phone System Repairs $ 2,000.00 $ 2,500.00 Cash $ 2,215.92 $ 1,000.00 $ 215.00 $ 80,216.88 Comstar odds and ends Amex Homedepot eric 6041 Cash Misc. 2 AMl systems Peter paint warehouse INTEROFFICE MEMORANDUM Village of Mount Prospect Mount Prospect, Illinois FROM: MICHAEL E. JANONIS, VILLAGE MANAGER DIRECTOR OF FINANCE 'BÞ. H. --tel ~ I ,2- 2J 0, TO: DATE: DECEMBER 13, 2004 2005 PROPERTY AND CASUALTY INSURANCE PROGRAM SUBJECT: PURPOSE: To present a recommendation for the property and casualty insurance program for the policy year beginning January 1, 2005 and ending December 31, 2005. DISCUSSION: The Village's current property and casualty insurance policies are set to expire on December 31, 2004. As with the insurance renewal for 2004, staff negotiated with the existing brokers and insurance companies to secure coverage for 2005. Due to the lack of brokers and insurers in the marketplace, no alternatives from other insurers were sought. We anticipate sending out a Request for Proposal for the Village's insurance program in 2005 pending improvements in the insurance market. The following is a brief summary of our expiring insurance program, an analysis of the various proposals received, and a summary of the insurance package being recommended by staff and its consultant. Expiring Program Attached is a current schedule of insurance in force, showing the type of coverage, the carrier, policy limits, and the broker of record (Attachment I). Village buildings and vehicles were insured this past year by Chubb Insurance Company. The amount of coverage was $55.6 million, with a $25,000 deductible. The annual premium was $92,745. The broker offering the coverage was Arthur J. Gallagher and Co. The Village utilizes a multi-tier approach of self-insurance, commercial insurance and pooled coverage to insure for auto and general liability claims. General liability insurance (including auto, police professional, employment practices and public officials) was provided by Illinois National Insurance Company, an AIG company. This policy provided for $1,750,000 of coverage in excess of a $250,000 self-insured retention (SIR) for each claim. Claims exceeding $2,000,000 are covered by our excess liability insurer, the High-level Excess Liability Pool (HELP). The annual premium for this coverage, purchased through Marsh USA, was $211,900. PROPERTY AND CASUALTY INSURANCE PROGRAM 12/13/2004 Page 2 Excess workers compensation coverage was purchased from Safety National, which insured the Village for individual claims in excess of $300,000. There was a $1 million aggregate limit. The annual premium was $37,235. The broker was Arthur J. Gallagher and Co. Program Alternatives As was mentioned previously, the Village utilizes a multi-tier approach to insure for auto and general liability claims. At the request of the Village Board, an actuarial firm was hired in April 2004 to prepare an analysis of the self-insured program. The goal of the valuation was to determine an appropriate level of reserves for the program as it is currently administered and calculate the reserve requirement were the Village to self-insure up to the point where HELP excess coverage kicks in. Based on the results of the valuation and recommendation from our insurance consultant it was determined the Village should self-insure for auto and general liability claims to the $2,000,000 retention level. Proposals Received Attached is a report from Nugent Consulting Group, the firm that assisted the Village in soliciting proposals from the various brokers and underwriters(Attachment II). Mr. Nugent presents a summary of the different renewal options offered by Marsh USA and Arthur J. Gallagher and Co. for the upcoming policy period. Page three of the report provides a table showing the breakdown of premium by coverage type for the current policy year and 2005 renewal. The table also shows the renewal premium excluding liability coverage. As you can see in the Nugent Report, the renewal quote for liability insurance for 2005 (as the program currently is administered) increased moderately (8.7% from $211,900 to $230,200) while coverage for property and excess workers compensation actually decreased. The total for all premiums and commissions as quoted is $378,028, an increase of6.5% over the 2004 premiums. A total of $382,797 was included in the proposed 2005 budget for this coverage. Under the alternative program that provides for the Village to self-insure general liability claims up to $2,000,000, total premiums and commissions as quoted drops to $137,838. Monies budgeted in 2005 for liability insurance ($244,000) will not be spent, but rather be used to build up the reserve in the Liability Insurance Fund. Insurance policies being recommended are the same as the expiring policies with regard to coverage, exclusions and limits with the following exceptions: . The self-insured retention for Workers Compensation Insurance was increased from $300,000 to $350,000. This level of self-insured retention has become the industry standard. PROPERTY AND CASUALTY INSURANCE PROGRAM 12/13/2004 Page 3 . The self-insured retention for General liability insurance (including auto, police professional, employment practices and public officials) was increased from $250,000 to $2,000,000 thus eliminating the need to purchase commercial coverage. The insurance companies being recommended are very sound financially and have an excellent claims payment history. Chubb Group is rated A++, XV (Superior) by A.M. Best, a recognized insurance company rating service. Safety National Casualty Corp. is rated A, IX (Excellent). Recently, questions have been raised regarding the practice of insurers paying contingent commissions. Both Marsh and A.J. Gallagher utilized contingent commissions in conducting their business, but have agreed to discontinue the use of these type of commissions effective September 2004 and January 2005 respectively. Our insurance consultant, Nugent Consulting Group, has taken steps on the Village's behalf to prevent this practice from impacting the Village. Attachment III is brief narrative and response from Nugent consulting on the history and practice of contingent commissions. RECOMMENDATION: 1) It is recommended the Village purchase property & boiler and excess workers compensation insurance from Arthur J. Gallagher and Co. with premiums and broker's fees totaling $137,828. . 2) It is recommended the Village self-insure for liability insurance up to $2,000,000 and forego the purchase of commercial coverage from Marsh USA, Inc. Total savings to the insurance program is $240,200. {.J ~7./ /' l.. ,/,¡;¿-¿..c¿.o¿¿/ c/ - ~~- DAVID O. ERB DIRECTOR OF FINANCE Attachments 1:\lnsurance\Memos\2004\2005 Renewal Memo to MJ.doc ATTACHMENT 1 VILLAGE OF MOUNT PROSPECT SCHEDULE OF INSURANCE IN FORCE December 31,2004 Deductiblel Specific Aggregate Self-Insured Excess Excess Expiration Policy Type of Coverage Carrier Retention Limit Limit Date Number Broker Premium Property, Building & Contents Chubb 25,000 55,561,302 none 01-Jan-05 35826710 Arthur J. Gallagher $92,745.00 Auto Physical Damage, Boiler Workers Compensation Safety National Insurance Co. 300,000 Statutory 1,000,000 01-Jan-05 SP-7620-IL Arthur J. Gallagher $37,235.00 General Liability Illinois National Insurance Co. 250,000 1,750,000 none 01-Jan-05 76031070 Marsh USA $211,900.00 Auto Liability Illinois National Insurance Co. 250,000 1,750,000 none 01-Jan-05 76031070 Marsh USA Incl Employment Practices Liability Illinois National Insurance Co. 500,000 1,750,000 none 01-Jan-05 76031070 Marsh USA Incl Police Professional Liability Illinois National Insurance Co. 250,000 1,750,000 none 01-Jan-05 76031070 Marsh USA InGI Public Officials Liability Illinois National Insurance Co. 250,000 1,750,000 1,750,000 01-Jan-05 76031070 Marsh USA Incl (Errors and Omissions) Fiduciary Liability - Police Pension Federal Insurance Company 25,000 5,000,000 5,000,000 01-Aug-05 8158-54-99 Marsh USA $9,855.00 Fiduciary Liability - Fire Pension Federal Insurance Company 25,000 5,000,000 5,000,000 01-Aug-05 8169-89-92 Marsh USA $8.671.00 Excess Liability High-level Excess Liability Pool 2,000,000 12,000,000 12,000,000 30-Apr-08 n/a n/a $126,808.00 Public Employee Dishonesty ITT Hartford 5,000 500,000 none 01-May-05 83BPEAD4895 Hobbs Group $2,424.00 Depositors Forgery ITT Hartford 1,000 100,000 none 01-May-05 83BPEAD4895 Hobbs Group Incl. Public Officials Bond - President ITT Hartford 100,000 100,000 01-May-05 83SU621253 Hobbs Group $400.00 Public Officials Bond - Manager ITT Hartford - 100,000 100,000 01-May-05 83SU621255 Hobbs Group $400.00 Public Officials Bond - Treasurer ITT Hartford 250,000 250,000 01-May-05 83BSBAK8746 Hobbs Group $1,150.00 Contingent Tax Interruption Chubb 25,000 9,000,000 9,000,000 01-Jan-05 35826710 Arthur J. Gallagher InGI in Prop Employee & Retiree Health Ins. Intergovernmental Personal 20,0001 none none 30-Jun-05 n/a n/a Benefit Cooperative 75,000 Third Party Administrators Workers Comp Claims Admin Cambridge n/a n/a n/a 01-Jan-05 n/a n/a Liability Claims Admin. GAB Robins n/a n/a n/a 01-Jan-05 n/a n/a A TT ACHMENT II NUGENT CONSULTING GROUP INSURANCE AND RISK MANAGEMENT CONSULTING November 22, 2004 Mr. Dave Erb Village of Mount Prospect 100 South Emerson Street Mount Prospect, IL 60056 Dear Dave: I have completed my review of the insurance renewal terms offered by Gallagher and Marsh. Please read below and refer to the attached spreadsheet. The attached spreadsheet provides a summary of the renewal options from the current insurers. No alternatives from other insurers were sought as we had agreements with insurers at these prices several months ago. We intend to utilize the RFP process in the future to secure alternatives from other insurers. Liability The liability coverage proposed by Marsh is from AIG insurance and covers excess of the Village's self-insured retention of $250,000, up to the HELP attachment of $2,000,000. The renewal premium will increase 9% over the current coverage, due primarily to an increase in the number of insured vehicles. The actual rate has decreased slightly over the current term. Also shown is an option to forego the AIG coverage and to self-insurer the whole layer to $2,000,000. Several of the other HELP Members utilize this approach (Arlington Heights, Skokie). This will save the Village $240,200 in premium and fees. The Village commissioned an actuarial study that indicates the annual additional funding for the higher self-insured retention is $144,000. Based on this information, it is likely the Village will save on average approximately $100,000 per year. Note that the actuarial estimate is more like a guess. The Village's will go most years without any activity in the layer from $250,000 to $2,000,000, but will have activity some years. Overall, the Village should save money. I recommend this option. 2409 PEACHTREE LANE NORTHBROOK, IL 60062 (847)412-0410 FAX (847)412-0610 Page 2 Mr. Dave Erb November 22,2004 Property The property premium will decrease slightly from the current term. Total insurable values are increasing 17%. Effectively, the Village is receiving a 17% decrease in the rate. Excess Workers Compensation The excess workers compensation premium will decrease slightly but the self- insured retention is increasing to $350,000 (from $300,000). The excess workers compensation market remains very limited and those few insurers in it are generally requiring $350,000 self-insured retentions due to police and fire exposures. Safety National has been the most competitive insurer for the past several years. Gallagher Fee Gallagher is requesting a 5% increase in fee. I recommend we negotiate terms of their contract prior to renewal this year, because we will want to secure commitments on the contingent commission arrangements. Please note that the GAB renewal terms are in the Marsh proposal sent directly to you. You should work directly with GAB on their terms. We have not been asked to review them. I am happy to meet with you to review this report. I will call shortly. Sincerely, 9diÆ.§ :Nu¡¡ent Michael D. Nugent, ARM President VILLAGE OF MOUNT PROSPECT 2005 INSURANCE RENEWAL 2005 Renewal 2005 Renewal 2004 No Changes $2,000,000 Liablity SIR Liability $ 211,800 $ 230,200 $ Property $ 92,745 $ 91,690 $ 91,690 Excess Workers Compensation $ 37,235 $ 36,436 $ 36,436 Marsh Fee $ 10,000 $ 10,000 $ - Gallagher Fee $ 9,240 $ 9,702 $ 9,702 $ 361,020 $ 378,028 $ 137,828 A TT ACHMENT III CONTINGENT COMMISSIONS New York Attorney General Eliot Spitzer filed a civil lawsuit in New York in October against the world's largest insurance broker, Marsh (Marsh & McLennan, MMC) alleging several inappropriate business practices. A contingent commission arrangement is an arrangement in which an insurer pays a broker or agent a percentage of premium based on volume of premium or profitability of an entire book of business placed by that agent / broker with the insurer. This commission is in addition to the commission or fee the client pays to the agent / broker for placement of the client's coverage. Contingent commission arrangements exist in virtually every insurance agency and brokerage house in the USA, if not the world. The five largest insurance brokers in the world collected over 1.2 billion in contingent commission revenue in 1993. Marsh had the biggest share at $847,000,000. Spitzer alleged that these contingent commissions are an industry name for a "kickback" and should be outlawed. They are currently legal in all states. He also alleged bid rigging charges that grew out of Marsh's desire to maximize its contingent commission revenue at the expense of the client. The genesis of contingent commissions is not clear. Some brokers maintain that they started as a result of a shift of some services from the insurers to the brokers. Outsiders suspect that insurers first introduced them as an incentive to secure more of a brokers business. In either case, they weren't much of a concern until several events changed the contingent commission landscape. The 1990's saw significant consolidation in the insurance brokerage ranks. Marsh, the world largest insurance broker bought the third largest broker, Johnson & Higgins, and the fourth largest broker, Sedgwick. Aon, the second largest broker bought Frank B. Hall (Fifth largest) and a large European broker. Arthur J. Gallagher went from the eighth largest broker to the fourth largest broker because of the consolidation. The two largest brokers, Marsh and Aon had become 800 pound guerillas. Outsiders were concerned that they had too much market clout and could dictate too much to insurers. In the late 1990's, Marsh established it global broking centers, requiring all branches to have business flow thru three centers that would deal directly with insurers. Marsh Global Broking began to consolidate business with key insurers. Those insurers were required to pay Marsh above market contingent commissions. Until 1998, most insurance buyers were not aware of the practice. The Risk and Insurance Management Society (RIMS) asked the US brokers to cease the practice citing potential conflicts of interest. Marsh and Aon refused and instead, offered to provide details of the fees to clients upon request. State insurance departments did not pick up on the issue and have not investigated the practice until recently, and only now because they have been embarrassed by the Spitzer action. Marsh eventually fired its chairman and several key players in the bid rigging allegation. They are currently negotiating a settlement with Spitzer's office. Marsh is also facing several shareholders suits, client suits and class action suits and their future is unclear. Marsh has discontinued the use of contingent commission agreements effective Sept 30, 2004. Aon has done the same. Aon maintains they should not be tarnished by the New York action. Their argument is: 1. Their contingency arrangements only account for $200,000,000, versus Marsh's $800,000,000, and have the lowest percentage of the 100 largest brokers. It is still a conflict of interest, and is still more thangS of the largest 100 brokers contingent revenue 2. They are a long standing and legal practice in the industry That does not make it right. 3. Even though premium volume based, they represent revenue for services performed for the insurers We have heard this one before and find it hard to believe. It is a reward for bringing more business, plain and simple. 4. The field branches and individuals do not know details of the arrangements, so no conflict exists. Certain brokers at that level favor certain insurers. Care to guess why? This statement is hard to believe. Everyone at Marsh knew who was on the preferred insurer list and why. Are the other large brokers different? No, in fact most try to emulate Marsh! 5. This is only political opportunism by Spitzer, who is alleging running for Governor next term. It may be, but it is about time someone did something about this. 6. It is not unlike any other incentive paid to a sales force for increasing sales volume. Except that insurance brokers hold themselves out as independent of the insurer and professional counselors providing unbiased advice. Aon indicates that they discontinued contingent arrangements "in the way they are currently set up". They will likely charge insurers fees for service and disclose these to clients. Willis (3rd largest) has announced they will discontinue contingent commission arrangements, as has Gallagher. Gallagher has actually indicated they will cease all "retail contingent arrangements". Note that Gallagher has quite a large wholesale operation both in the US and in London, that a substantial number of their clients use, and appears not subject to this decision. The remaining 96 largest insurance brokers have been awfully quiet. Several have indicated no intention of ending these arrangements because of the effect on their financial position. What should you do? 1. 2. 3. Pressure your current broker to discontinue the practice Require stricter disclosures on this and similar arrangements Request confirmation that no bid rigging has occurred on your account in the past. Consider only doing business with those brokers that discontinue the practice, and monitor their operations going forward for other similar practices. Only pay fees for service, no commission in any form to any firm or its subsidiaries. 4. 5. Nugent Consulting Group will be doing the above for its retainer clients. Nugent Consulting does not receive any revenue from any source other than direct fees from our clients. We do not accept revenue of any sort from any insurance broker, insurance company, wholesaler, intermediary, third party administrator or managed care provider. Nugent Consulting Group 11/12/04