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Posted on April 6, 2014
The City Auditor has found that over the last ten years the City of Tallahassee has paid a 9.1% broker fee equal to $3.24 million, while other cities, using a more competitive approach to secure insurance coverage has paid 5.1% in broker fees.
The audit report indicates that over this period the City of Tallahassee could have saved approximately $1.5 million.
The audit was requested by City Commissioner Scott Maddox at the September 25, 2013 City Commission meeting.
At that meeting, the City’s Risk Management Division sought approval to award coverage for Excess Workers’ Compensation and Aviation Liability to broker J. Smith Lanier.
The item was listed under the Consent section of the agenda, indicating that there would be no discussion on the issue. However, Commissioner Maddox requested a discussion.
Commissioner Maddox commented at length about his opposition to the process used to select the insurance broker and that the current process heavily favored the incumbent firm and worked to exclude potential bidders.
Commissioner Maddox said that insurance companies “have told us the fix is in.” He continued by saying that “it is completely and totally unacceptable that we have a process of selecting the incumbent over and over again in a competitive market.”
But Commissioner Maddox saved his harshest criticism for city staff who told him it would take more than 120 days to get a new process in place.
Commissioner Maddox said “if we can’t figure out how to fix this in 120 days we either do not want to or we are incompetent.”
See video from City Commission meeting below.
Commissioner Maddox expressed support for changing to RFP process to enable more companies, especially local companies, to bid on this contract.
The audit findings, released on December 12, 2013, seem to support the concerns put forth by Commissioner Maddox.
The report found over the last ten years, the City has acquired the vast majority of its commercial insurance coverage through one broker, J. Smith Lanier & Co. and its predecessor companies. Premiums paid by the City for all commercial insurance coverages during the last ten years totaled $35.6 million. The broker fees/compensation for the last ten years totaled approximately $3.24 million, or 9.1% of the total premiums paid.
The report also found Broker fees/compensation paid by nine of the ten local governments surveyed, each using a more competitive approach in acquiring insurance coverage, averaged 5.11% of total premiums paid.
In comparison, broker fees/compensation payable by the City for current year coverage represents 8.8% of total annual premiums. If the City paid 5.11% in broker fees/compensation, it would pay approximately $150,000 less annually in broker fees/compensation.
The audit concludes by stating that the “Treasurer-Clerk’s Risk Management section should consider revising its methods for acquiring commercial insurance coverage.”