HomeMy WebLinkAboutFND-011-06
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REPORT
FINANCE DEPARTMENT
Meeting:
COUNCIL
Date:
MONDAY JUNE 26, 2006
Resolution #: g 3 d- . D fa
Report #: FND-011-06
File #:
By-law #:
Subject:
2006/2007 INSURANCE PROGRAM
Recommendations:
It is respectfully recommended to Council the following:
1. THAT Report FND-011-06 be received; and
2. THAT the general insurance placement, in conjunction with the other member
municipalities of the Durham Municipal Insurance Pool, with the Frank Cowan
Company for an integrated pooling arrangement that includes integrated
insurance coverages and common self retention deductible levels for the period
July 1,2006 to June 30,2007 at an approximate cost to Clarington of $614,190
be approved.
Reviewed bQ ~~ Cc5k. _
Franklin Wu,
Chief Administrative Officer.
NT/hjl
REPORT NO.: FND-011-06 PAGE 2
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BACKGROUND AND INFORMATION:
1.0 The purpose of this report is to provide Council with an update with respect to
insurance coverage for the period July 1, 2006 to June 30, 2007. As Council is
aware, the Municipality of Clarington is a member of the Durham Municipal
Insurance Pool. Insurance has been a difficult issue over the past several years
due to world events and a ‘hard’ insurance market. Very few insurers are
interested in municipal liability coverage due to a generally poor loss experience
and an increase in frequency and severity of claims.
1.1 The Board of Directors of the Durham Municipal Insurance Pool (of which
Clarington sits as Chair), is recommending a placement with the Frank Cowan
Company for an integrated pooling arrangement. The main features of the
proposal include:
i) Retention of Clarington’s local insurance deductibles of $25,000 for most
of the lines of coverage; and
ii) Sharing the cost of claims by the Pool members from the local deductible
level to $500,000 per claim.
INSURANCE COVERAGE FOR THE DURHAM MUNICIPAL INSURANCE
1.2
POOL
i) In July 2000, the Durham Municipal Insurance Pool was launched with the
participation of the Towns of Ajax and Whitby, the Municipality of Clarington
and the Townships of Brock, Scugog and Uxbridge and the Region of
Durham. The Pool was formed to protect the participating municipalities from
increasing insurance premium costs by structuring an alternative risk-
financing program with a higher collective deductible and collectively self-
insuring claims within the deductible.
ii) Staff is pleased to report that the Durham Municipal Insurance Pool continues
to fulfill the expectations with regard to the operational and financial benefits
projected at its inception.
iii) As a result, the Durham Municipal Insurance Pool has positioned itself to
minimize the annual increases in insurance premium paid to insurance
For the July
companies related to property, casualty and liability coverage.
1, 2006 to June 30, 2007 renewal period, insurance premiums to be paid
to the Durham Municipal Insurance Pool’s insurer will increase by only
3.5%.
iv) This relatively low increase will allow the member municipalities of the DMIP
to set aside additional funds that have been provided in their respective 2006
Business Plans and Budgets to further protect the municipalities from the cost
of insurance claims in the future. The DMIP members have agreed to
REPORT NO.: FND-011-06 PAGE 3
______________________________________________________________________
increase the municipal contributions to the Insurance Pool by 15% for
2006/2007 in order to set aside additional funds to finance potential self
insured claims in the future.
v) Coverage purchased from the insurer for DMIP is in accordance with expiring
terms and conditions with the following main amendments:
?
Aggregate protection is not available.
?
Property catastrophic limits have increased from $250 million to $300
million
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Property and non-auto casualty exposures of the transit operations have
been included in the DMIP program.
vi) As a result of eliminating the aggregate protection (ie. a cap on the total
amount of all claims paid within the Pool’s deductible of $500,000), there is a
possibility that the Pool could potentially have to draw from additional funds
set aside to pay claims.
vii) The actuarial analysis undertaken for the DMIP by KPMG indicates that the
additional funding set by the Board in the future, exceeds the future expected
claims losses forecasted by the actuaries based on historical claims
experience for self insured claims within the Pool’s deductible limit.
viii)The two main strategic issues for setting aside additional funding are:
1) Stability and Financial Strength of the Pool – allows the Pool to consider
the best risk financing options available in the future and reduces the
possibility of future additional contributions.
2) Future Premium Fluctuations – allows the Municipalities to strategically
manage potential future insurance market price fluctuations.
ix) Should the claims not materialize in the future as a result of proactive risk
management practices, the additional funds that have been set aside may be
returned to the Durham Municipal Insurance Pool members some time in the
future in the form of repatriated surpluses. DMIP currently holds a surplus of
$0.5 million.
x) Actuarial analysis indicates that the additional funds set aside should be
sufficient to cover the losses within the Pool’s deductible. The actuarial
recommends that this confidence level should range between 75% to 90%
based on conservative assumptions. DMIP have funded conservatively to the
recommended confidence levels.
REPORT NO.: FND-011-06 PAGE 4
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xi) Consequently, it is recommended that Clarington proceed to renew its
integrated risk program, in conjunction with the other member municipalities,
with the Frank Cowan Company for the period July 1, 2006 to June 30, 2007.
1.3 For Clarington, the 2006/2007 contribution is estimated at $614,190. This
represents the 15% increase over last years’ pool contribution of $534,063 and
reflects an annual insurance cost of approximately $575,000.
1.4 The 2006 budget for insurance is $550,000 for premiums as well as adjusters
costs and payment of claims below the local deductible. As a result, the budget
for insurance (as mentioned in budget deliberations) will require further
adjustment in the 2007 budget process. For 2006, any shortfall will be funded
through the self-insured losses reserve as required.
CONCLUSION:
2.0 For the 2006/2007 year the Durham Municipal Insurance Pool has been
successful in obtaining a reasonable insurance placement with an increase that
is extremely modest in comparison to those that some municipalities have been
facing across the country. A neighbouring municipality was reported as having a
65% increase over last year. Participation in the Durham Municipal Insurance
Pool has provided a successful mechanism both to control insurance costs as
well as promote risk management practices to reduce claims and protect against
lawsuits. It was therefore recommended that Clarington proceed with the
insurance placement in conjunction with the Durham Municipal Insurance Pool
with the Frank Cowan Company with a premium increase to the insurer of only
3.5%.
______________________________________________________________________
CORPORATION OF THE MUNICIPALITY OF CLARINGTON
40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T (905)623-3379 F (905)623-4169