Faced with potential 54% increase in city’s insurance premium for 2023-24, Sarasota city commissioners approve lower level of coverage

Deductible will double, from $50,000 to $100,000 per event

With the cost of the City of Sarasota’s property insurance premium expected to go up as much as 53.78%, compared to the prior year’s expense, the city commissioners on March 6 voted unanimously to reduce the city’s level of coverage.

The tentative, total new premium is $2,081,007, compared to $2,421,007 if the city maintained the status quo, the March 6 agenda request form points out. The city policy’s total premium this year is $1,574,327. Thus, the new plan’s cost would mark a 32.18% increase, city documents show.

Additionally, with the new policy, the city’s deductible will rise from $50,000 per event to $100,000.

A representative of the city’s long-time insurance brokerage firm, Brown & Brown, explained to the commissioners that the firm never waits until the last meeting before the renewal is due to come before them with the agenda request. “So these are not-to-exceed numbers,” Paul Dawson, senior vice president and account executive with Brown & Brown, said of the two options provided to the board members for the March 6 discussion.

“They’re going to get better,” he pointed out of the quotes, though he cautioned the board members, “I don’t know how much better.”

By the time the policy for 2022-23 was signed, Matt Arendall, the city’s risk manager, added, the city paid $20,000 less than the quote.

Nonetheless, Commissioner Erik Arroyo told the men, “I’m not too optimistic about this [quote falling].”

The city’s current plan has a limit of $60 million, with a sublimit of $50 million for wind damage from a named storm and another sublimit of $50 million for flood damage. The new plan will lower those figures to $25 million for general coverage per occurrence, plus another $25 million for wind damage from a named storm and $25 million for flood damage.

The total insured value of city property will be $308,879,258, a document shows. That is up from $297,190,208 for 2022-23. In 2017-18, a chart said, the total insured city property value was $272,686,931, and the insurance premium was $906,693.

Early on during the March 6 City Commission discussion, Arendall pointed out, “Florida continues to be a difficult market [in which] to secure insurance coverage,” with the carriers focused on limiting their exposure.

In explaining how he makes coverage recommendations, Dawson of Brown & Brown noted that he looks at loss limits. If a local government cannot cover its damages, he said, and it applies to the Federal Emergency Management Agency (FEMA) for the extra money it needs, the first thing FEMA will do is check with the state to determine whether the local government “bought a reasonable amount of insurance,” though that term is undefined, he acknowledged.

He has been in the insurance business for 28 years, Dawson continued. “We believe that a ‘reasonable amount’ ” is equal to or greater than the expense of repairing damage resulting from a catastrophic event every 250 years. A model is used to calculate the amount, he added.

“At the $25-million limit,” Dawson told the commissioners, “we’re still above that [figure].”

Therefore, he said, if the city did not have enough insurance to cover a catastrophic loss, Brown & Brown would provide documentation to the state to show FEMA that the city had enough insurance coverage, based on the model.

Referring to the two policy options that he and Risk Manager Arendall had provided the board members for the March 6 meeting — keeping the same amount of coverage or reducing it — Dawson characterized them thus: “Neither one of ’em’s wrong; neither one of ’em’s right …” What would be wrong in his opinion, he added, would be lowering the coverage to the $10-million level.

Claims in recent years

When Commissioner Arroyo asked about city insurance claims in recent years, Arendall replied that only two “significant losses” had occurred during the past four years. One was a fire at Pioneer Park that destroyed the playground equipment. That loss added up to approximately $280,000, Arendall added.

The second was damage to the Payne Park Auditorium, as a result of Hurricane Ian’s strike in September 2022. The “ballpark number” on that is around $700,000, he said.

The city’s deductible for wind damage is $100,000, Arendall pointed out.

When Arroyo asked about other claims in the past 10 years, Arendall said everything else was under the city’s deductible.

Then Arroyo asked how many companies to which Brown & Brown had “shopped” the city’s 2023-24 coverage .

No fewer than 30, Dawson responded, including markets in London. Dawson added that he figured the total was about 100, as Brown & Brown sought formal quotes.

Comparisons and more questions

Arroyo also asked why Fort Lauderdale and other local governments had seen smaller increases in their policy expenses for the next year. He was referencing a chart in the backup agenda material.

The increase for Fort Lauderdale was 13%. The following figures also were shown: Manatee County, $15%; Walton County, 14%; and Santa Rosa County, 15%.

The City of Fort Lauderdale decreased its wind coverage by almost 50%, Dawson told Arroyo. It was $75 million for the previous year; it has gone down to $40 million.

Arroyo did ask Dawson about the potential of lowering the city’s coverage on all three limits to $10 million.

Dawson again explained about the effort required in getting supplemental funding from FEMA. Moreover, Dawson said, “It’s impossible to predict [the amount of damage] if we had a direct hit from a [Category] 5 [hurricane]. But most, if not all, entities that have had direct hits from these large hurricanes are experiencing losses that greatly exceed the amount of insurance that they purchased.”

If the City of Sarasota sustained a direct hit from a Category 4 or Category 5 hurricane, Dawson added, “Twenty-five [million] or $50 [million] wouldn’t be enough.”

Nonetheless, Arroyo pointed to the fact that even with the lower option Brown & Brown had recommended, the city would be paying about 37% more in its premium.

“This is ‘Katrina 2.0,’ ” Dawson responded. In the aftermath of Hurricane Katrina’s devastation of New Orleans and other areas of the Gulf Coast in 2005, he said, the cost of insurance policies went up close to 100% in 2006.

“Katrina was the costliest hurricane that ever hit the United States,” he pointed out. “It’s kind of an anomaly.”

Losses from major hurricanes such as Katrina and Ian make insurers very nervous, Dawson said. If a Katrina type of storm occurs no more often than every 25 years, he added, underwriters can handle that situation.

Arroyo asked what would happen if the quote for the city rose 50% next year and then another 50% the following year: “At what point do we really reassess all of this?”

At the second 50% uptick, Dawson replied.

However, Dawson continued, “If enough public entities — cities and counties — say, ‘We’re not doing this anymore,’ then something is broken; something would have to give.”

If the 2023 storm season “is very quiet,” Dawson added, “We’ll start to see more competition and start to see a decline in rates.” After 2006, he noted, rates “came down very fast.”

Commissioner Debbie Trice asked Dawson whether the commission would have a problem if it lowered its coverage this year and then decided to restore it to a higher level in the future.

“Absolutely not,” he assured her.

Commissioner Jen Ahearn-Koch asked, “What’s the downside to reducing our coverage?”

“Having an event that requires us to go to FEMA,” Dawson responded. “It takes a long time to get the money.”

Then the city would have to use money from its reserve fund to cover the gap while it waited on FEMA, Ahearn-Koch indicated.

The alternative, City Manager Marlon Brown noted, would be to leave a damaged building as it was until FEMA provided the money.

“That’s a great idea!” Ahearn-Koch responded with a laugh.

“It’s a tough decision,” Brown acknowledged.

Ahearn-Koch did concede, “I don’t like paying any more than we have to to insurance companies, that’s for sure.” Still, she expressed concern about the risk of lowering the city’s coverage.

She added, “I wouldn’t go below [the Option 2 recommendation, with the three limits of $25 million].”

When Arroyo asked whether any municipality or jurisdiction in the state has a limit as low as $10 million, Dawson told him that Brevard County has the lowest amount of all his clients: $20 million.

“Rarely do you see any claim that goes up to $20 [million],” Arroyo told him.

Lee County Government, which is one of Brown & Brown’s clients, “blew through the limit with Ian,” Dawson responded. “Any entity that takes a direct hit,” Dawson added, likely would be in the same situation. “It does happen.”

Vice Mayor Liz Alpert said it seemed that, for the difference in expense to the city, it would make more sense to stay with the higher level of coverage.

“We describe that as ‘sleep coverage,’ ” Dawson told her.

When she asked him to repeat that, he explained, “Fifty [million] makes me sleep at night. … It really depends on whether $25 [million] keeps you up at night.”

“It seems like insurance is more or less ‘no sleep’ insurance,” Mayor Kyle Battie added, “because you all are all over the place right now.”

When Alpert then asked City Manager Brown for his recommendation about the coverage, Brown told her he supported the lower amount. “There’s a lot that we’re taking on in the coming year,” Brown pointed out, referring to city projects.

Battie agreed with Brown.

Arroyo then made the motion to go with Option B — the $25 million/$25 million/$25 million choice, and Ahearn-Koch seconded the motion. With no more discussion, it passed 5-0.