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.”
There is something suspect about Maddox’s motives here calling for an audit. First, does Maddox have ties to another large insurance firm who directly contributes to campaigns for large multi-million dollar contracts that he is attempting to get through the back door?
Second,as far as I know the firm that the risk management company went with is NOT a pay to play firm.
Does Maddox want them to go with a firm who low-balls bids, then distributes mega cash into political campaigns, or go with a reputable firm that gives a legitimate bid who in-turns pays decent salaries and benefits to their employees rather than maximum campaign contributions into politicians campaigns?
So, was the audit called for in retaliation for not going with a pay-to-play firm or a self-serving motive to tarnish reputable firms to shade the the real intent to change to firms who are willing to pay to play?
The article, “Audit Indicates Tallahassee Paid More in Insurance Commissions Than Other Cities” was posted on 04/06/2014, but the audit findings were released on 12/12/2013. Why did it take almost 4 months for Tallahassee Reports to report on it?
First, Tallahassee Reports is the first media outlet to report the audit findings. Second, on the delay, City of Tallahassee did not issue a press release on the audit. Tallahassee Reports got a tip about the audit less than a week ago.
Thank you for your quick reply and for explaining the delay.
Audits are available on line. Why did your investigation have to wait four months for a “tip”?
Once again, Tallahassee Reports has uncovered another instance of government inefficiency. And, credit must also be given to Commissioner Maddox for blowing the whistle during a “public meeting”.
Hopefully, Tallahassee’s citizens will step up and put enough pressure on our city’s leaders, to demand a change in the policy.
An “RFP” and a “competitive” bidding process would result in lower rates for our taxpayers.
I’m pretty sure TR did not intend to give credit to Maddox, deserved or not.
Im just surprised Marks didnt hit the kill switch when he started making this critical attacks on the city.