TRANSMITTAL LETTER FOR BOARD MEETING OF JULY 11, 2013
COMMITTEE ON PROCUREMENT
Mr. David St. Pierre, Executive Director
Title
Issue purchase order to Willis of Illinois, Inc. for Furnishing Property Insurance Coverage for District Properties in an amount not to exceed $2,018,000.00, Account 101-25000-612290, Requisition 1361466
Body
Dear Sir:
At the Board Meeting of December 6, 2012, in accordance with Contract 12-RFP-22, the Board of Commissioners awarded a purchase order to Willis of Illinois, Inc. (Willis) to serve as the District's broker-of-record for property insurance and related services for a three-year period. In this capacity, Willis now has responsibility for securing quotes from the insurance market for specified insurance policies, and presenting the quotes from qualified carriers to the Risk Manager for review and recommendation of a selected carrier to the Director of Procurement and Materials Management.
On June 27, 2013, the District received certain bid quotations which Willis had solicited pursuant to the Detailed Specifications for Property Insurance for a one-year period to be effective July 1, 2013, or as soon as practicable thereafter, to provide insurance coverage for District property including buildings, structures and equipment at water reclamation plants, pumping stations, the Lockport Powerhouse, and offices. A single insurance policy was requested with policy limits of
$1,000,000,000.00+ (one billion+) with deductible options at $1,000,000.00 (one million), $2,500,000.00 (two and one-half million) and $5,000,000.00 (five million).
With insurable values in excess of $10,400,000,000.00 (ten billion four hundred million), the District represents a formidable challenge to insure. The number of carriers with the capacity to provide the desired limits is extremely limited. Four insurance carriers indicated an interest in underwriting the District's property risk. A total of four (4) responses were received. Pricing is for a deductible at $1,000,000.00.
AIG/Lexington: Limit $1,500,000,000.00 Pricing $2,018,000.00
FM Global: Limit $1,500,000,000.00 Pricing $2,014,149.00
XL Insurance: Limit $500,000,000.00 Pricing $3,000,000.00
Berkshire Hathaway: Declined to quote
Only two carriers, AIG/Lexington and FM Global, could provide the capacity requested. However there were significant differences in the proposals as respects sublimits. For two key areas of coverage, Earth Movement and Flood and Water Damage, the Detailed Specifications set required limits of $250,000,000.00 Annual Aggregate each. FM Global offered only $100,000,000.00 Annual Aggregate each. In addition, FM Global placed an additional sublimit of $10,000,000.00 for all coverages as respects damage to property below grade 30 feet/9 meters. These lower sublimits constitute a significant and undesirable restriction in coverage for the District. The AIG/Lexington proposal includes coverage for Earth Movement and Flood and Water Damage at the required limits of $250,000,000.00 Annual Aggregate each. For all other sublimits, AIG/Lexington either met the required sublimit or offered a sublimit that was equal to or greater than that offered by FM Global with one minor exception. FM Global provided pricing at only two deductible levels. AIG/Lexington provided pricing at the three deductible levels requested. Pricing at the higher deductible levels was considered less favorable for the District than that at a deductible of $1,000,000.00. AIG/ Lexington also offered a 2-year option, with rates being held flat for the 2-year period subject to certain conditions.
The proposals were evaluated by Willis, the Risk Manager and representatives from the Procurement and Materials Management Department. The proposals were also presented to the Executive Director, General Counsel and the Director of Human Resources. Based on their collective review, it was determined that the District should purchase property coverage from AIG/Lexington, who offered higher sublimits in key risk areas. The company is licensed to do business in Illinois, complies with the insurance ratings requirements and, although a non-admitted carrier, the company's rating is stable and it has a reputation for excellent service.
In view of the foregoing, it is recommended that the Director of Procurement and Materials Management be authorized to issue a purchase order to Willis of Illinois, Inc. in an amount not to exceed $2,018,000.00. It is also recommended to accept the 2-year commitment option, subject to funding availability in year 2014.
Funds for the 2013 expenditure in the amount of $2,018,000.00 are available in Account 101-25000-612290. Funds for the 2014 expenditure are contingent on the Board of Commissioners' approval of the District's budget for that year.
Requested, Denice E. Korcal, Director of Human Resources
Recommended, Darlene A. LoCascio, Director of Procurement and Materials Management
Respectfully Submitted, Barbara J. McGowan, Chairman Committee on Procurement
Disposition of this agenda item will be documented in the official Regular Board Meeting Minutes of the Board of Commissioners for July 11, 2013