REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF THE COUNTY OF SAN BERNARDINO
AND RECORD OF ACTION
June 22, 2021
FROM
VICTOR TORDESILLAS, Interim Director, Department of Risk Management
SUBJECT
Title
Renewal of County’s Cyber Liability Insurance Program
End
RECOMMENDATION(S)
Recommendation
1. Approve the renewal of the County’s Cyber Liability Insurance Program, as recommended by Arthur J. Gallagher & Co. Insurance Brokers of California, Inc., for a total program coverage limit of $20.0 million in excess of $500,000 self-insured retention, with a total premium of approximately $909,873, for the period of July 1, 2021 through July 1, 2022.
a. A primary layer of $5.0 million in excess of $500,000 self-insured retention, for a premium of approximately $255,228 with Indian Harbor Insurance Company.
b. A secondary layer of $5.0 million in excess of $5.0 million primary layer, for a premium of approximately $242,477 with Starr Insurance Company.
c. A third layer of $8.0 million in excess of $10.0 million of underlying insurance, for a premium of approximately $335,763 with Lloyd’s Syndicate.
d. A fourth layer of $2.0 million in excess of $18.0 million of underlying insurance, for a premium of approximately $76,405 with Tarian Underwriting Limited.
2. Authorize the Director of the Department of Risk Management to execute the binding order on behalf of the County.
(Presenter: Victor Tordesillas, Interim Director, 386-8621)
Body
COUNTY AND CHIEF EXECUTIVE OFFICER GOALS & OBJECTIVES
Operate in a Fiscally-Responsible and Business-Like Manner.
FINANCIAL IMPACT
Approval of this item will not result in the use of additional Discretionary General Funding (Net County Cost). The total premium of approximately $909,873 will be paid from the Department of Risk Management’s (Department) liability funds, and will be recovered through Board of Supervisors (Board) approved rates charged to County departments and Special Districts. Sufficient appropriation is included in the Department’s 2021-22 recommended budget.
BACKGROUND INFORMATION
The Department oversees the County’s insurance programs, transferring many of its risk exposures through the procurement of over 20 different lines of insurance, including excess insurance policies to provide additional protection for the County. The Director of Risk Management manages all aspects of the County’s insurance and risk financing programs. As a large public agency, the County is self-insured and self-administered for its workers’ compensation and large public liability programs with deductibles and dollar-one coverage for smaller programs.
The County continues to increase its operations and communications online, increasing exposure to computer system hackings, data breaches, and risk for theft of personally identifiable information, personal credit information, or protected health information. This program provides first party coverage for County losses, mitigating the costly expenses related, but not limited to breach response, crisis management, and a ransomware type of cyber-attack. The program also includes coverage for third party losses related, but not limited to defense, awards, and fines. Managing these exposures will contribute to the County’s goals of operating in a fiscally-responsible and business-like manner. The recommended renewal of the cyber liability insurance program will result in a decrease in the current coverage limit of $30 million to $20 million and the current self-insurance retention will increase from $50,000 to $500,000 due to the insurance market experiencing higher claim severity and a reduction in capacity. The broker has attempted and exhausted all efforts to obtain additional coverage to reach the $30 million coverage limit, however due to these market conditions, the broker has not been successful. Risk Management will continue additional efforts throughout the policy year to reach the $30 million coverage limit and if successful, will bring the matter for Board approval. The total premium cost of approximately $909,873, represents an increase of $590,975 or approximately 185.31% over last year’s premium of $318,898. The increased rate is due to the hardening of the insurance market from the significant increase, severity, and complexity of ransomware incidents and breaches during the previous year.
On June 9, 2020 (Item No. 51), the Board approved the renewal of a countywide cyber liability insurance program for a total premium not to exceed $318,898 for the period of July 1, 2020 through July 1, 2021.
The Department recommends the renewal of this countywide cyber liability insurance program that provides coverage for the following risks: third party liability, media, privacy and cyber security, privacy regulatory defense, awards and fines, first-party business interruption and extra expense, data recovery, cyber extortion and ransomware, and data breach response and crisis management.
Recommendation No. 2 will authorize the Director of Risk Management to execute the binding order on behalf of the County to expedite the process to obtain renewed coverage, without any lapse in coverage or the need to go back to the Board for additional signatures.
PROCUREMENT
On December 5, 2017 (Item No. 55), the Board approved contracts with insurance brokers, including Arthur J. Gallagher & Co. Insurance Brokers of California, Inc. (Agreement No. 17-901), for the period of December 11, 2017 through December 10, 2020.
On July 14, 2020 (Item No. 50), the Board approved a one-year extension of the contracts with insurance brokers, for the period of December 11, 2020 through December 10, 2021.
Arthur J. Gallagher & Co. Insurance Brokers of California, Inc., approached new and existing markets for quotes, successfully obtaining a proposal for the cyber liability program with a premium increase.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (Cynthia O’Neill, Principal Assistant County Counsel, 387-5397) on May 27, 2021; Purchasing Department (Bruce Cole, Supervising Buyer, 387-2148) on May 19, 2021; Finance (Carolina Mendoza, Administrative Analyst, 387-0294) on May 28, 2021; Human Resources (Diane Rundles, Human Resources Director, 387-5572) on May 28, 2021; Innovation and Technology Department (Robert Pittman, Chief Information Security Officer, 388-5510) on June 1, 2021; and County Finance and Administration (Kelly Welty, Deputy Executive Officer, 387-4376) on May 28, 2021.