Meeting_Body
FINANCE, BUDGET, AND AUDIT COMMITTEE
JUNE 18, 2025
Subject
SUBJECT: EXCESS LIABILITY INSURANCE PROGRAM
Action
ACTION: APPROVE RECOMMENDATION
Heading
RECOMMENDATION
Title
AUTHORIZE the Chief Executive Officer to negotiate and purchase Public Entity excess liability policies with up to $300 million in limits at a not-to-exceed premium of $29.8 million for the 12-month period effective August 1, 2025, to August 1, 2026.
Issue
ISSUE
Metro’s Public Entity excess liability insurance policies (which include transit rail and bus operations) will expire on August 1, 2025. Insurance underwriters will not commit to final pricing until two to three weeks before the current program expires on August 1st. Consequently, staff is requesting a not-to-exceed amount for this renewal, pending final pricing and carrier selection. Without this insurance, Metro would be subject to unlimited liability for bodily injury and property damage claims resulting primarily from bus and rail operations.
Background
BACKGROUND
Metro’s insurance broker, Marsh USA, LLC (Marsh), is responsible for marketing the excess liability insurance program to qualified insurance carriers. Quotes are currently being received from carriers with A.M. Best ratings indicative of acceptable financial soundness and ability to pay claims. The premium indication below is based on current market expectations. However, final pricing is not available until approximately 14 days prior to binding coverage.
Metro established a program of excess liability insurance to protect against insured losses. Each year, Risk Management meets with Metro’s insurance broker to prepare for the upcoming marketing process.
Initial discussions begin in the third quarter of the fiscal year through an evaluation of market conditions to determine the availability of coverages and at what levels of premium. Marsh is the new insurance broker for Metro, and as such, an abbreviated stewardship meeting was conducted in March to identify the required data, including loss development, ridership projections, mileage, and revenue hour estimates. Risk Management obtained the data, including targeted completion dates of various projects, to provide an accurate account of the agency's present and future liability exposures.
The data was then forwarded to Marsh to present to the domestic insurance marketplace as well as international markets in London and Bermuda. Due to timing requirements, Marsh approached underwriters in March and April to ensure that the data was deemed current. The initial indications of interest and costs became apparent in May.
Marsh provides a not-to-exceed number that serves two functions. First, the number provides an amount Risk Management may approach the CEO and Board to obtain approval for binding of the new program, which mitigates a potential gap in insurance coverage. Second, the number allows Marsh ample time to continue to negotiate with underwriters to ensure that Metro obtains the most competitive pricing available.
Discussion
DISCUSSION
Staff and Marsh have identified three main objectives for the 2025-2026 excess liability renewal:
1) mitigating insurer concerns about Metro’s risk exposure, 2) maintaining a diverse mix of insurers to foster competition, and 3) maintain total limits of $300 million with an $8 million self-insured retention (SIR) for rail claims and $12.5 million for all other claims, while remaining open to alternative structures.
To achieve these objectives, Metro and Marsh will continue to emphasize the lower risk associated with light rail and subway services, along with safety enhancements, to obtain more favorable pricing. All potential insurers in the US, London, and Bermuda will be approached, and Marsh and Metro will work to find the best partners for this risk.
The global insurance market faces challenges for US Casualty risks, particularly for public entities in California. The firming market, primarily driven by loss development related to auto liability, is reducing carrier capacity and increasing rates, with average increases ranging from 10-15% for loss-free programs and over 20% for those with historical losses. Average rate increases vary based on rail vs. bus exposure, jurisdiction, and the market access point.
Staff attended meetings arranged by Marsh at the RIMS convention with all major underwriters on Metro’s program. These encounters with the various markets and underwriters afforded an opportunity to respond directly to additional questions they had concerning operations, safety, risk management, and claims. These meetings also fostered deeper relationships with these partners to ensure they understand Metro.
Metro’s August 1st insurance placement will see increased premiums due to stricter underwriting guidelines, adverse auto liability losses, and the overall state of the market discussed above. Marsh recommends maintaining a bifurcated program for bus and rail. Metro has an $8M SIR for rail risks. Metro self-insures a total of $20M for bus and all other non-rail risks, including an initial $12.5M SIR and quota share layers. A higher SIR may offer Metro greater flexibility in managing premium costs. Marsh will continue to explore options, including alternative retentions up to $25M, and quota share arrangements, to achieve more favorable premiums until the renewal date. Separate from this action, Marsh and Risk Management will explore the formation of a Metro Captive Insurer as an alternative to traditional insurance placement.
Attachment A provides an overview of renewal options, premiums, and loss history, and Attachment B reflects the proposed 2025-2026 Excess Liability Program, which mirrors the current 2024-2025 program structure. Risk Management recommends proceeding with renewal at a minimum coverage limit of $300 million and a not-to-exceed premium of $29.8 million.
Determination_Of_Safety_Impact
DETERMINATION OF SAFETY IMPACT
Approval of this recommendation positively impacts the safety of Metro’s patrons and employees. Liability insurance carriers will perform certain facility inspections to mitigate potential risks or hazards and provide an overall risk assessment of Metro’s assets as they underwrite the program. In addition, carriers may provide best-practice guidance to enhance Metro’s risk profile.
Financial_Impact
FINANCIAL IMPACT
Funding of $28.5M for this action is included in the FY26 Proposed Budget in cost center 0531, Non-Departmental - Operations Risk Management, under projects 300022 - Rail Operations - A Line, 300033 - Rail Operations - C Line, 300044 - Rail Operations - B Line, 300066 - Rail Operations - E Line, 300077 - K Line, 301012 - Bus Operations - G Line, 306001 - Operations Transportation, and 320011 - Union Station.
Metro’s insurance premiums are amortized and span two fiscal years. The cost center manager and the Interim Chief Transit Safety Officer will be accountable for budgeting in FY27 costs not included in the FY26 budget.
Impact to Budget
The sources of funding for this action will come from federal, state, and local funding sources that are eligible for bus and rail operations, and capital projects.
Equity_Platform
EQUITY PLATFORM
The insurance policies cover all Metro-owned property, stations, tunnels, bridges, rolling stock fleet, right of ways, facilities, and buildings that provide transportation service and benefits to Metro riders. Metro’s liability insurance program ensures that its facilities, rolling stock fleet, and infrastructure, which serve riders, are covered by insurance policies in the event of major loss or damage.
Vehicle_Miles_Traveled _Outcome
VEHICLE MILES TRAVELED OUTCOME
VMT and VMT per capita in Los Angeles County are lower than national averages, the lowest in the SCAG region, and on the lower end of VMT per capita statewide, with these declining VMT trends due in part to Metro’s significant investment in rail and bus transit.* Metro’s Board-adopted VMT reduction targets align with California’s statewide climate goals, including achieving carbon neutrality by 2045. To ensure continued progress, all Board items are assessed for their potential impact on VMT.
While this item does not directly encourage taking transit, sharing a ride, or using active transportation, it is a vital part of Metro operations, as it provides excess liability coverage for Metro’s assets. Because the Metro Board has adopted an agency-wide VMT Reduction Target, and this item supports the agency's overall function, it is consistent with the goals of reducing VMT.
*Based on population estimates from the United States Census and VMT estimates from Caltrans’ Highway Performance Monitoring System (HPMS) data between 2001-2019.
Implementation_of_Strategic_Plan_Goals
IMPLEMENTATION OF STRATEGIC PLAN GOALS
The recommendation supports strategic plan goal # 5, “Provide responsive, accountable and trustworthy governance within the LA Metro organization.” The responsible administration of Metro’s risk management programs includes the use of insurance to mitigate large financial risks resulting from unlimited liability for bodily injury and property damage claims resulting from, primarily, bus and rail operations.
Alternatives_Considered
ALTERNATIVES CONSIDERED
Due to the continued hard market, there are no additional limits in coverage for consideration. SIRs above the current structure levels are being proposed and considered, and negotiations are ongoing. Attachment A reflects the proposed program structure, which mirrors the current 2024-2025 policy term. The only variation will be to the SIR, which may end up being higher than the current program structure.
Next_Steps
NEXT STEPS
Upon Board approval of this action, staff will advise Marsh to proceed with the placement of the excess liability insurance program outlined herein, effective August 1, 2025.
Attachments
ATTACHMENTS
Attachment A - Options, Premiums, and Loss History
Attachment B - Proposed Public Entity Liability Carriers and Program Structure
Prepared_by
Prepared by: William Douglas, Senior Manager Risk Financing, (213) 922-2105
Claudia Castillo del Muro, Executive Officer, Risk Management, (213) 922-4518
Reviewed_By
Reviewed by: Kenneth Hernandez, Interim Chief Transit Safety Officer, (213) 922-2990
