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Ratification of Contract Award for RTA Parametric Insurance Coverage [2023-2024]
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DESCRIPTION: Ratification of Contract Award for RTA Parametric Insurance Coverage [2023-2024] |
AGENDA NO: Click or tap here to enter text. |
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ACTION REQUEST: ☒ Approval ☐ Review Comment ☐ Information Only ☐ Other |
RECOMMENDATION:
recommendation
To ratify emergency action taken by the Chief Executive Officer to bind parametric hurricane coverage prior to peak hurricane season with Homesite Insurance Company of Florida/Certain Underwriters at Lloyd’s of London, with a $4,000,000 aggregate limit, an effective date of September 1, 2023, and an annual premium of Two hundred forty-three thousand two hundred fifty-two dollars [$243,252.00].
This expenditure was covered in full through $272,037 in savings realized at the June 1, 2023 and August 1, 2023 insurance renewals as follows:
June 1, 2023 renewals - Board Approval of $2,465,669.31; Actual premiums of $2,248,512.68; Savings in the amount of $217,156.63.
August 1, 2023 renewals - Board Approval of $4,941,405.00; Actual premiums of $4,886,523.79; Savings in the amount of $54,881.21.
Although RTA has historically sought business interruption insurance without success, this parametric insurance product will now cover RTA for all verifiable hurricane-related losses, inclusive of business interruption and property/casualty, with pre-defined payouts that avoid a lengthy claims process.
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ISSUE/BACKGROUND:
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Staff, with the assistance of the RTA insurance broker of record, The Kennedy Financial Group of Louisiana, Inc., has recently reviewed additional opportunities to protect RTA assets and interests in the event of a hurricane. Although RTA currently has adequate coverage of its real property and vehicles, other elements of potential loss, such as business interruption, are not covered through available traditional insurance. Parametric insurance is a non-traditional insurance product that offers pre-specified payouts based upon a trigger event and acts as a supplement to insurance currently in force. With parametric coverage, once the magnitude of a trigger event is verified, the insurer issues the payout specified in the policy without the need to investigate the details of the loss or adjust the claim.
For hurricanes, parametric insurance typically utilizes wind speed as the trigger event. The elected insurance limit is distributed like a blanket across the city with a chosen number of “pins”. During a hurricane, the maximum sustained wind at each of these pins is calculated. If the windspeed at any pin exceeds the windspeed threshold, insurance coverage is triggered.
Given that this type of insurance pays upon a pre-defined event instead of an actual loss, it offers a key benefit of covering any type of confirmed loss, including business interruption.
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DISCUSSION:
With the objective of securing adequate and sufficient parametric insurance, the RTA insurance broker of record, The Kennedy Financial Group of Louisiana, Inc., approached multiple markets, obtained proposals, and ultimately recommended Homesite Insurance Company of Florida/Certain Underwriters at Lloyd’s of London as the best option in terms of product structure and price.
This recommendation included a $4,000,000 aggregate limit with an immediate binder date of September 1, 2023, inclusive of the following structure:
Trigger Event: A Named Windstorm with a maximum 1-minute sustained marine wind speed as reported by Moody’s RMS HWind at the Calculation Locations.
Allocated Limit and Locations: Calculation Locations are 32 pins distributed across RTA’s service areas, with the policy limit ($4M) distributed equally across all covered locations. [See attachment: Parametric “Pin” Map/Asset Locations and Calculation Points]
The corresponding premium for this coverage is $243,252.00, with the term of September 1, 2023, through August 31, 2024.
With the 2023 Atlantic hurricane season reaching its peak, and upon recommendation by The Kennedy Financial Group of Louisiana, Inc., the Chief Executive Officer bound coverage effective September 1, 2023.
Request for ratification is sought today of this expedient action by the Chief Executive Officer to optimally protect RTA assets and interests in the event of a hurricane through the timely binding of parametric insurance.
FINANCIAL IMPACT:
$243,252.00
Funds for this contract are available from the RTA operational budget, and the $272,037.84 savings realized through lower premiums than anticipated from the June 1, 2023 (“Various Insurance Coverages”) and August 1, 2023 (“Excess Liability and Automobile Physical Damage”) renewals. [See attachment: June 1, 2023 Renewals and August 1, 2023 Renewals].
Specific savings herein:
June 1, 2023 Renewals - savings in Property/Excess Property [Account # 1830002.9142.169] and Overhead Catenary System [Account # 1830002.9144.16903] insurance premiums: $217,156.63
August 1, 2023 Renewals - savings in Excess Liability [Account # 1830002.9131.169] and Automobile Physical Damage [Account # 1830002.9132.169] insurance premiums: $54,881.21
NEXT STEPS:
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ATTACHMENTS:
1. Resolution for Contract Award of RTA Parametric Insurance Coverage [2023-2024]
2. Parametric Hurricane Indication/Trigger Locations and Limit Allocation/Payout Table
3. Parametric “Pin” Map/Asset Locations and Calculation Points
4. Insurance Renewal Data: June 1, 2023 and August 1, 2023 Renewals
Prepared By: Marc Popkin
Title: Risk Analyst
Reviewed By: Mark A. Major
Title: Deputy CEO
Reviewed By: Gizelle Banks
Title: Chief Finance Officer
9/19/2023
Lona Edwards Hankins Date
Chief Executive Officer