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Report
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Report To: General Government Committee
Date of Meeting: September 4, 2018
Report Number: FND-012-18 Resolution: GG -400-18
File Number: By-law Number:
Report Subject: 2018/2019 Insurance Program
Recommendations:
That Report FND-012-18 be received;
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, 2018 to June 30, 2019, at
an approximate cost to Clarington of $932,094 be confirmed; and
3. That the purchase of cyber liability coverage through the Frank Cowan Company at a
cost of $20,000 be confirmed.
Municipality of Clarington
Report FND-012-18 Page 2
Report Overview
2018/2019 has been another successful year for the Durham Municipal Insurance Pool and
Clarington has benefitted strongly through a minor 3.4% premium increase. Due to the
changes in the global risk environment, Clarington has also purchased cyber liability
coverage.
This report is primarily an update to Council on the status of the Durham Municipal
Insurance Pool and current initiatives being undertaken.
1. Background
1.1 The purpose of this report is to provide an update to the General Government Committee
regarding the status of the Municipality's insurance program.
1.2 This report also includes a review and update of the Durham Municipal Insurance Pool,
which is now entering its eighteenth year of successful operations.
1.3 Clarington is a founding member of the Durham Municipal Insurance Pool which was
established to achieve financial savings by co-operatively purchasing insurance
coverages with local and pool level deductibles and by implementing common risk
management practices. The pool protects participating municipalities from increasing
insurance premium costs through an alternative risk -financing program with a higher
single deductible and collectively self-insuring claims within that deductible. Clarington
has held the position of Chair of the Board of the Durham Municipal Insurance Pool since
its inception.
1.4 The Durham Municipal Insurance Pool was launched in July 2000 with the participation of
the Town of Ajax, Town of Whitby, Municipality of Clarington, Township of Brock,
Township of Scugog, Township of Uxbridge and the Region of Durham. City of Oshawa
joined the Durham Municipal Insurance Pool effective July 1, 2017.
1.5 Member municipalities are provided with coverage in the areas of general liability, errors
and omissions, auto liability and property insurance. The Durham Municipal Insurance
Pool provides municipal specific resources such as loss prevention programs, site audits
and training.
Municipality of Clarington
Resort FND-012-18 Paae 3
2. 2018/2019 Insurance Contract Renewal
2.1 Within the terms of the subscriber's agreement, the Durham Municipal Insurance Pool
members agree to make a contribution sufficient enough to pay administration costs,
expenses (including actuarial and audit), premiums and a claim funding amount that is
supported by full actuarial projections and analyses.
2.2 The Durham Municipal Insurance Pool has been able to position itself to minimize the
impact of increases in insurance premiums paid to insurance companies related to
property, casualty and liability coverages.
2.3 For 2018/2019, the DMIP negotiated with the insurer and has secured the broadest and
most comprehensive coverage available to municipalities with a nominal rate increase in
the insurance premium and claim funding for the 2018/2019 policy year. This increase is
partially offset by an increase in investment income. Overall, the net cost for the annual
DMIP insurance program has increased by 3.4 per cent. The inflation factor experienced
in the broader municipal sector is ranging between 6 and 8 percent.
2.4 We also continue to benefit from a three (3) year rate stability agreement with the Frank
Cowan Company, which is a significant benefit for the Durham Municipal Insurance Pool
members. Essentially, unit prices for vehicles and property remain the same, premium
increases are a direct relation to increased volumes. There was an approximate 4%
increase in DMIP's building values, increase in the number of licensed automobiles,
population growth and new development.
2.5 The 3.4% increase reflects the conditions in the broader insurance marketplace, including
the increase risk of cyber crime, general increase in judicial awards, the increasing
litigious nature of society and insurance rate increases for weather related events, such
as hurricanes and wildfires.
2.6 The Board of Directors of the Durham Municipal Insurance Pool has placed coverage
with the Frank Cowan Company for an integrated pooling arrangement.
3 Benefits of an Insurance Pool
3.1 The main components of the structure of the Durham Municipal Insurance Pool
arrangements are summarized as follows:
x Each municipality retains their respective current deductibles ranging from $5,000 to
$100,000 (Clarington's deductibles are primarily $25,000);
Municipality of Clarington
Report FND-012-18 Page 4
x The pool self -insures losses between these local deductibles and a per claim limit of
$500,000 (on a group basis) for integrated coverages;
x Under this structure, local municipalities are responsible for funding losses from $0 to
their individual deductible amounts;
x Between these local municipal deductibles and the pooled retention limit of $500,000, the
eight (8) members share the cost on a collective basis; and
x Excess of a $500,000 per claim loss, the members purchase insurance from municipal
insurers for protection on a collective basis against catastrophic claim losses.
3.2 During its eighteen years of existence, this innovative risk financing venture continues to
be a highly effective method by which the municipalities have enjoyed:
x Broader insurance coverage;
x Control over the costs of insurance claims below the $500,000 deductible;
x Pro -active, comprehensive and coordinated risk management services to reduce property
and liability exposures;
x Increased investment income on the retained portion of the pre -funded claims loss
reserve; and
x Increased price stability.
4 Cyber Insurance Coverage
4.1 To a great extent, traditional insurance policies are excluding or not responding to data
breaches. The Frank Cowan Company advised the Durham Municipal Insurance Pool
that beginning with the 2017/2018 policy year, separate insurance coverage would be
required to protect Durham Municipal Insurance Pool members from claims resulting from
the unauthorized access of confidential information.
4.2 Due to this changing nature of global risks, Clarington has secured cyber liability
coverage for a second year that required a detailed application process including risk
assessments and cyber awareness training evidence.
Municipality of Clarington
Resort FND-012-18
5 Status of Insurance Claims
Paae 5
5.1 Each department in the Municipality has a role to play in risk management practices to
reduce claims, as well as claims handling practices to reduce exposure when claims are
received. Ongoing training occurs, both as components of annual departmental training
programs, as well as specific risk management or claims handling seminars co-ordinated
or hosted through the Finance Department. Risk inspections are also undertaken.
5.2 Currently, there are approximately 67 outstanding claims with an estimated financial
impact of $2.1 million. As referenced above, Clarington pays the deductible and the
balance of the costs are covered through the Durham Municipal Insurance Pool and the
Frank Cowan Company. This forms part of the annual municipal insurance budget.
5.3 The bulk of the claims relate to slips, trips and falls on municipal sidewalks, building
inspection and motor vehicle accidents.
6. Annual Costs and Comparison
6.1 Almost 75% of the Municipality's insurance costs fund the unpaid claims reserve. The
value of the reserve is determined actuarially and considers historical experience,
industry standards, expected claims, discounting and confidence level. The reserve is
used for payment of claims beyond the Municipality's deductible of $25,000 per
occurrence. As well, the insurance pool has distributed back to the Municipality of
Clarington, excess unpaid claim reserve balances which to date total just under
$770,000.
6.2 The Municipality also budgets $180,000 for claims within our $25,000 deductible limit.
Clarington budgets corporately for insurance under Unclassified Administration.
2018/2019
2017/2018
Increase
Premiums
347,224
37.25%
323,915
35.96%
23,309
2.59%
Administrative
47,252
5.07%
47,612
5.29%
(360)
(0.04%)
Claims Funding
685,860
73.58%
659,535
73.23%
26,325
2.92%
Interest Income
(148,242)
(15.90%)
(130,409)
(14.48%)
(17,833)
(1.98°/x)
Total
932,094
100%
900,653
100%
31,441
3.49%
6.1 Almost 75% of the Municipality's insurance costs fund the unpaid claims reserve. The
value of the reserve is determined actuarially and considers historical experience,
industry standards, expected claims, discounting and confidence level. The reserve is
used for payment of claims beyond the Municipality's deductible of $25,000 per
occurrence. As well, the insurance pool has distributed back to the Municipality of
Clarington, excess unpaid claim reserve balances which to date total just under
$770,000.
6.2 The Municipality also budgets $180,000 for claims within our $25,000 deductible limit.
Clarington budgets corporately for insurance under Unclassified Administration.
Municipality of Clarington
Resort FND-012-18 Paae 6
7 Concurrence — not applicable
8 Conclusion
8.1 Risk pooling is a long-term management strategy. It is not a "quick fix" for insurance
pricing problems. The full benefits of participation in a risk pool are not fully realized for
several years. The Durham Municipal Insurance Pool has now been in existence for a
sufficient period of time that these benefits are being realized on an annual basis. The
Durham Municipal Insurance Pool has been in place for eighteen years and is an
outstanding achievement in alternative service delivery.
8.2 For the 2018/2019 year, the Durham Municipal Insurance Pool has been successful in
obtaining a favourable insurance placement with minimal cost increases. 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. Therefore, Clarington proceeded with the insurance
placement in conjunction with the Durham Municipal Insurance Pool with the Frank
Cowan Company, pursuant to our subscribers' agreement, as well as placing separate
cyber liability coverage with the Frank Cowan Company.
9 Strategic Plan Application
The recommendations contained in this report conform to the Strategic Plan.
Submitted by::57_7z�� Reviewed by:
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Trevor Pinn, B.Com, CPA, CA Andrew C. Allison, B. Comm, LL.B
Deputy Treasurer CAO
NT/TP/hjl
Staff Contact: Trevor Pinn, Deputy Treasurer, 905-623-3379 ext 2604 or tpinn@clarington.net
There are no interested parties to be notified of Council's decision