HomeMy WebLinkAboutFND-013-07
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REPORT
FINANCE DEPARTMENT
Date:
GENERAL PURPOSE AND ADMINISTRATION COMMITTEE
MONDAY JUNE 18,2007 Resolution #f)fA-tfU;-(T7
Meeting:
Report #: FND-013-07
File #:
By-law #:
Subject:
2007 12008 INSURANCE PROGRAM
Recommendations:
It is respectfully the General Purpose and Administrative Committee recommend to
Council the following:
1. THAT Report FND-013-07 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, 2007 to June 30, 2008 at an approximate cost to Clarington of $644,900
be approved.
Reviewed ~ ~ ....:::LJk
Franklin Wu,
Chief Administrative Officer.
NT /na
REPORT NO.: FND-013-07
PAGE 2
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, 2007 to June 30, 2008. 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.
1.2 INSURANCE COVERAGE FOR THE DURHAM MUNICIPAL INSURANCE
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
companies related to property, casualty and liability coverage. For the Julv
1, 2007 to June 30, 2008 renewal period, insurance premiums to be paid
to the Durham Municipal Insurance Pool's insurer will remain consistent
with the prior year.
iv) This stability over last year will allow the member municipalities of the DMIP
to set aside additional funds that have been provided in their respective 2007
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-013-07
PAGE 3
increase the municipal contributions to the Insurance Pool by 5% for
2007/2008 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.
vi) As a result of eliminating the aggregate protection in 2006/2007 (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) Stabilitv and Financial Strenqth 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
$0.6 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.
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, 2007 to June 30, 2008.
1.3 For Clarington, the 2007/2008 contribution is estimated at $644,900. This
represents the 5% increase over last years' pool contribution of $614,191 and
reflects an annual insurance cost of approximately $630,000.
REPORT NO.: FNO-013-07
PAGE 4
1.4 The 2007 budget for insurance is $600,000 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 2008 budget process. For 2007, any shortfall will be funded
through the self-insured losses reserve as required.
CONCLUSION:
2.0 For the 2007/2008 year the Durham Municipal Insurance Pool has been
successful in obtaining a reasonable insurance placement with an overall impact
that is extremely modest. 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.
CORPORATION OF THE MUNICIPALITY OF CLARINGTON
40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L 1 C 3A6 T (905)623-3379 F (905)623-4169