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THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON
REPORT
Meeting:
General Purpose and Administration Committee
File #: fie;)..
Res.#:6PA - w(P-91.
Date:
February 1, 1999
TR-7-99 File #:
Report #:
By-Law #:
Subject:
INSURANCE POOLING STATUS UPDATE
Recommendations:
It is respectfully recommended the General Purpose and Administration Committee
recommend to Council the following:
1. THAT Report TR-7 -99 be received;
2. THAT Council endorse the Municipality of Clarington proceeding with an
insurance pooling arrangement with the Region of Durham and other area
municipalities, the Durham Municipal Group, beginning with the premium year
1999/2000, subject to terms and conditions of the agreement being
satisfactory to the Treasurer and Chief Administrative Officer;
3. THAT the Mayor and Clerk be authorized to enter into the Agreement prior to
July 1, 1999; and
4. THAT the appropriate By-Law be forwarded to Council for approval.
Background:
1.0 Since the 1994/1995 premium year, the area municipalities, in conjunction with the
Region of Durham have been investigating the potential associated with insurance
pooling.
1.1 In Report TR-46-98 (Attachment #1), Council authorized the Treasurer, as a member
of the Durham Municipal Group to continue to pursue this opportunity.
1.2 Dion, Durrell and Associates were contracted by the Region to conduct an
independent actuarial study to determine the feasibility of pooled insurance for the
Durham Municipal Group.
1.3 As a part of this independent study, the current program was analyzed as shown in
Attachment #2. Clearly shown in the second chart are the premium increases from
HIS
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TR-7-99
Paae 2
the current insurance provider over a five (5) year time period compared to the loss
ratio. There is a substantial gap between these two values representing the
significant surplus of premiums over losses paid.
1.4 As a result of the report by Dion, Durrell and Associates, it is recommended that the
Durham Municipal Group proceed with a pooled insurance arrangement. This is not a
reciprocal such as OMEX. It is simply combining resources as a municipal group to
purchase insurance co-operatively based on agreed upon criteria. It eliminates the
profit, administration and overhead costs of a "middle man".
1.5 The Region of Waterloo has successfully launched its own insurance pool and has
made their experience and expertise available to the Durham Municipal Group.
1.6 The operation of a pool will virtually be no different than that of the current insurance
provider. Pool participants pay their annual premium installments each year and are
only responsible for their individual deductibles when a claim occurs. Any claim in
excess of the pool limit is covered by a purchased group policy, therefore, covering
liability associated with any significant claim. All legal and adjusting fees would be
included in the total claim costs and are therefore not a separate individual
responsibility. The pool funding would be structured such that there would not be any
significant risk of additional assessments against the pool participants.
1.7 The ultimate administrative structure will be developed co-operatively between the
Municipalities with the assistance of Dion, Durrell and Associates.
Conclusion:
2.0 Insurance pooling represents an opportunity for substantial cost savings over the long
term for the Durham Municipal Group by eliminating excessive premium costs and
providing control to the municipalities over their insurance program.
2.1 It is therefore recommended that the Municipality of Clarington proceed in conjunction
with the Durham Municipal Group, to establish an insurance pooling arrangement.
Reviewed by:
Ie . Marano, H.BSc.,AMCT,
Treasurer.
J r~_-ujlA.
Franklin Wu, M.C.I.P.,R.P.P.,
Chief Administrative Officer.
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Attachments
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THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON ATTACHMENT #1
REPORT
Meeting:
Date:
Report #:
Subject:
GENERAL PURPOSE AND ADMINISTRATION COMMITTEE
File #
JUNE 8, 1998
TR-46-98
File#:
1998 /1999 INSURANCE PROGRAM
Res. #
By-law #
Recommendations: full d d h th G I Purpo d Admini' . C .
It IS respect y recommen e t at e enera se an stratlOn ommlttee
recommend to Council the following:
1. THAT Report TR-46-98 be received;
2. TEL-\. T the presentation of Mr. David Reed from Frank Cowan Company Limited be
acknowledged and received with thanks; and
3. THAT Frank Cowan Company Limited continue to be retained as the Municipality of
Clarington's insurance carriers for t.'Ie period from July 1, 1998 to June 30, 1999,
under the Durham Municipal Group Insurance Program at an approximate cost of
$260,749 plus applicable taxes; and
4. THAT the Durham Municipal Group, in preparation of the 199912000 premium year,
commence a detailed investigation of an insurance pooling arrangement with the area
municipalities and the Region of Durham for implementation July 1, 1999.
BACKGROUND & COMMENTS
1.0 In preparation for the 1994/1995 premium year, the area municipalities in conjunction
with the Region of Durham undertook an investigation of the potential associated with
bulk co-operative purchasing, pooling of funds and reciprocal insurance.
1.1 As a result of this investigation, it was concluded that the Regional/Municipal Group
were not at a sufficient stage of development to be able to efficiently or effectively
administer the extreme move to a fully self-funded pooling arrangement as it would
require central co-ordination of all policies, additional expert staffing and significant
administrative cost.
1.2 At a Spring 1996 meeting of the Durham Municipal Group, presentations and
discussions took place regarding insurance pooling with purchased reinsurance to
reduce the risk to the participating Municipalities.
b 17
TR-46-98
PAGE 2
l
1.3 The Region of Durham financed the cost to update the actuarial study done in 1994 to
determine the viability of an insurance pooling arrangement.
1.4 Per Report TR-60-97, Frank Cowan Company Limited was retained as provider for the
Durham Municipal Group Insurance Program for the 1997/1998 premium year.
However it was also recommended that the Durham Municipal Group continue to
investigate insurance pooling as well as any other insurance alternatives.
1.5 In light of the investigation of other insurance alternatives, Frank Cowan Company has
presented an overall decrease in the renewal rate from the 1997/1998 premium year by
S.O %. In addition Cowan has offered a guarantee that rates will not exceed the current
level subject to our commitment to renew with the Frank Cowan Company for three
successive one year terms and our agreement to defer any market search for that three
year period.
1.6 At a May 1998 meeting of the Durham Municipal Group, it was agreed that insurance
pooling remains a viable option in the long term and this arrangement needs to be
investigated in greater detail. Therefore the Region and area municipalities agreed to
renew with Frank Cowan Company for one year and to proceed with the investigation
of an insurance pooling arrangement. Final recommendations in this regard will be
brought to council in advance of the renewal date for the 1999/2000 premium year.
SELF-INSURED LOSSES RESERVE
,
2.0 Annually, any surplus resulting from the comparison of premium year budget to actual
cost is transferred into the self-insured losses reserve. For the 1997/1998 premium
year, there was no unexpended budget remaining to be transferred into the reserve.
This is primarily a result of budget constraints as well as payments to our insurance
adjusters handling an increased number of claims and deductible payments for the
settlement of prior year's claims.
2.1 The self-insured losses reserve is intended to cover costs associated with insurance
claims below the Municipality's deductible amount, as well as fund the payment of the
deductible. Consistent with the levels established over the past few years, it is
recommended that the current levels be maintained as follows: the property deductible
of $10,000 and the boiler and machinery deductible of $5,000. A copy of the summary
of policy levels and deductibles is shown in attachment #1. As of December 31, 1997,
the balance in the reserve was $135,916 (1996 - $114,197). The total draw on the
reserve in 1997 was $13,281 as where possible, deductible payments were charged
directly to the insurance operating account. There was also a budgeted contri~ution of
$35.000 to the self-insured losses reserve in 1997.
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TR-46-98
PAGE 3
CONCLUSION
The recommendations outlined above are respectfully recommended for approval for the
1998/1999 premium year to be effective July 1, 1998.
Respectfully submitted,
Reviewed by,
~~-
ane A. Marano, H.BSc.,A.M.C.T.,
Treasurer.
W.H. Stockwell,
Chief Administrative Officer.
MAM/KS/km
Attachment #1
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ATTACHMENT #2
THE REGION OF DURHAM
Current Program(cont'd)
1998/99 Premium
OUxbridge
$?S,34l4
. S<ugog
$104.423
I Pkk.ering
$358,976
o Whitby
$304,462
[] Ajax
S3S2,21l
Total Premium: $2.79 Million
DIOl', DURRELL + ASSOCIATES INC.
THE REGION OF DURHAM
Current Program(cont'd)
Historical Experience*
lSO%
160%
.S1 140%
:; lZlt%
,.
~ 100%
.3 SO%
.~ 60%
'"
oS 40%
W%
0%
-t- fumiwn
- UlL IlR
93/94
100%
3.%
94/95
108%
42%
95/96
123%
37%
%197
150%
54%
971'>'
158%
3.%
98/99
151%
Fiscal Year
. The figures are derived from one oCme municipality's experience.
. The ~mium for 1993/94 is used as the base premium.
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DION, DURRELL + ASSOCIATES INC.
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