Property & Insurance Market Outlook

Budget & Finance Committee August 24, 2021

James Duff AVP Risk Management

0 Purpose of Briefing

The purpose of this item is to brief the Committee on the state of the Property and Casualty (Liability) Insurance market and highlight the market challenges of the 2021 – 2022 insurance renewal period.

Finance Department 1 Operations Insurance Programs

• Coverages are marketed by Willis Towers Watson (WTW) ‒ Property ‒ Excess Rail Liability ‒ Excess Cyber Liability • Additional coverages are provided by Texas Municipal League (TML) – 2005 ILA ‒ Cyber Liability ‒ Hired and Non-Owned Automobile Liability ‒ Leased Premises Liability ‒ Errors & Omissions ‒ Losses resulting from theft, forgery and alteration, computer fraud, and employee dishonesty

Finance Department 2 DART Insurance Coverages

• Property Insurance – Current premium rate: $0.0504 (*$2,639,826) – Property values - $5.2 billion – Cost is shared with Trinity Metro for TRE. • Rail Liability Insurance – Current premium $3,095,411 – Positive Train Control (PTC) agreements require DART to increase coverage from $295 million to $323 million. – Cost is shared with Trinity Metro for TRE and DCTA • Estimated premiums increase is 15 – 20%.

*Includes surplus fees. Finance Department 3 Current Insurance Market

• Market continues to harden • Insurers leaving the market, reducing capacity • Sub-limits lowered and policy terms tightened by underwriters • Weather events and related losses are driving the market challenges: - Historic Hurricane Season - Wildfires - Flooding - Severe Storms • Carrier Consolidation • Market Exits and Carrier Withdraw • Underwriter Restrictions • Market is showing signs of stability

Finance Department 4 Annual Insurance Renewal Strategy

• Explore Rail Liability insurance partnerships and cost sharing opportunities. – Continue partnership with DCTA & Trinity Metro for TRE – Explore partnership with TEXRail & Grapevine Vintage Railroad • In conjunction with DART Legal, conducted a presentation for Rail Liability underwriters. • Prepared a presentation for property underwriters for Willis Towers Watson to distribute.

5 Self-Insurance Excess Fund

• DART created the Master Insurance Reserve fund on April 26, 1988. (Resolution 880047). – The balance in this fund has changed over the years to meet the requirements set forth in Financial Standard G5, as amended. – As of July 31, 2021, the balance is approximately $21.3 million. • DART staff will evaluate the cost impact of self-insuring the top $100 million layer on the Rail Liability Program. • Following the evaluation, the Board will balance the amount of the premium to be paid in comparison to designating, or not being able to use the $100M in cash that will be sent aside for the self- insured amount.

Finance Department 6 Next Steps

• Obtain insurance quotes through Willis Towers Watson. • Evaluate and report to the Board of Directors a recommendation for creating a self-insurance fund. • On September 28, 2021, Risk Management will request approval from the Board of Directors to purchase Property insurance and Rail Liability Insurance. • Policies renew November 1, 2021. • Request to add TEXRail and Grapevine Vintage Railroad to DART’s Rail Liability Insurance program is scheduled for November 9, with a projected January 1, 2022, effective date.

Sources: Willis Towers Watson Insurance Market Realities 2021 Willis Towers Watson Insurance Market Realities 2021 Spring Update Finance Department 7 8

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