HomeMy WebLinkAboutFND-014-08
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REPORT
FINANCE DEPARTMENT
Meeting:
GENERAL PURPOSE AND ADMINISTRATION COMMITTEE
MONDAY JULY 7th, 2008 Resolution #:~P(1-L.t61o-0g
Date:
Report #: FND-014-08
File#:
By-law #:
Subject:
2008/2009 INSURANCE PROGRAM
Recommendations:
It is respectfully the General Purpose and Administrative Committee recommend to
Council the following:
1. THAT Report FND-014-08 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, 2008 to June 30, 2009 at an approximate cost to Clarington of $670,297
be confirmed.
Submitted by:
Reviewed bY:O~...:.... b.3k.
Franklin Wu,
Chief Administrative Officer.
NT/hjl
REPORT NO.: FND-014-08
PAGE 2
BACKGROUND AND INFORMATION:
1.0 After successive years of increasing insurance premiums for municipalities, the
general insurance market has now changed for insurance buyers. The insurance
market has become very competitive resulting in lower premiums. However,
there are few insurers in the marketplace that are willing to offer insurance
coverage to municipalities due to nature of the risk exposures facing
municipalities.
1.1 Municipalities and the NeQliQence Act
i) Unfortunately, municipal risk continues to be a challenge when seeking
insurance coverage. Municipal liability insurance is the main concern due
to provisions under the NeQliQence Act regarding a municipality's liability.
ii) The NeQliQence Act states that, where two or more persons have caused
damages and where two or more persons are found at fault or negligent,
they are jointly and severally liable to the persons suffering loss or
damage. This "joint and several" liability means that even if a municipality
if found to be only 1 % liable and if the other persons have no assets and
are unable to pay their percentage of the damages, the municipality is
legally responsible to pay up to 100% of these damages, thereby exposing
municipalities and their insurers to potentially huge damage awards.
1.2 The Board of Directors of the Durham Municipal Insurance Pool (of which
Clarington sits as Chair), has placed coverage with the Frank Cowan Company
for an integrated pooling arrangement.
1.3 The main components of the structure of the DMIP arrangement are summarized
as follows:
. Each municipality retains their respective current local deductibles ranging
from $5,000 to $100,000 (Clarington's deductibles are primarily $25,000);
. The Pool self insures losses between these local deductibles and a per claim
limit of $500,000 (on a group basis) for integrated coverages;
. Under this structure, local municipalities are responsible for funding losses
from $0 to their individual deductible amounts;
. Between these local municipal deductibles and the pooled retention limit of
$500,000, the seven members share the cost on a collective basis; and
. Excess of a $500,000 per claim loss, the members purchase insurance from
municipal insurers for protection on a collective basis.
REPORT NO.: FND-014-08
PAGE 3
1.4 Insurance Coveraqe 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) July 2008 will mark the beginning of the eighth year of operation for the
Durham Municipal Insurance Pool (DMIP). Staff is pleased to report that
the DMIP continues to fulfill all expectations with regards to both financial
and operational benefits envisioned at its inception.
iii) For the July 1,2008 to June 30, 2009 renewal period, insurance premium
rates to be paid to the Durham Municipal Insurance Pool's insurer will
decrease over premiums paid during 2007/2008. This decrease was
achieved despite a substantial increase in insurance property values, the
number of assets insured and the impact of raising catastrophe loss limits.
Negotiations with the Pool's insurers will be ongoing to investigate means
of further reducing the renewal cost, including increasing deductible levels.
iv) The DMIP members have agreed to 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) 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 $1.6 million.
viii) Consequently, Clarington proceeded to renew its integrated risk program,
in conjunction with the other member municipalities, with the Frank Cowan
Company for the period July 1, 2008 to June 30, 2009.
REPORT NO.: FND-014-08
PAGE 4
1.5 For Clarington, the 2008/2009 contribution is estimated at $670,297. This
represents the 5% increase over last years' pool contribution of $638,378.
1.6 The 2008 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 2009 budget process. For 2008, any shortfall will be funded
through the self-insured losses reserve as required.
UPDATE ON THE DURHAM MUNICIPAL INSURANCE POOL:
2.0 The pool was formed to protect the participating municipalities from increasing
insurance premium costs by structuring an alternative risk-financing program with
a higher single deductible and collectively self-insuring claims amongst the
member municipalities within that higher deductible.
2.1 During its seven years of existence, this innovative risk-financing venture
continues to be highly effective method by which the municipalities have enjoyed:
. Uniform insurance coverages;
. Controls of the costs of insurance claims below the $500,000 deductible;
. Pro-active risk management services to reduce property and liability
exposures;
. I ncreased investment income on the retained portion of the pre-funded claims
loss reserve; and
. Accumulated savings from reduced premium costs.
2.2 Financial Performance
i) Since its inception in 2000, the DMIP has been able to set aside funds in
reserve for the payment of future claims of approximately of $7.0 million.
Allocating funds to reserves has been made possible due to substantially
reduced annual insurance premiums paid to insurers associated with the
retention of higher claims deductible levels by DMIP and sharing the risk
amongst the participating municipalities.
ii) In addition to setting aside substantial funds in reserve for future claims,
the DMIP has been able to generate an actuarial surplus of approximately
$1.6 million. These funds will position the DMIP to further lower insurance
costs in the future through higher claim deductibles and enhanced risk
management practices.
Hi) The existence of reserves of this magnitude allows the DMIP to earn and
retain interest on balances that otherwise would have been paid to
insurers in the form of conventional insurance premiums paid by the
individual participating municipalities had the DMIP not been formed.
Also, there is a possibility that a portion of the funds set aside in reserve
REPORT NO.: FND-014-08
PAGE 5
may not be required in the future in the event that claim payments are less
than the amount reserved. Should this occur, the unspent funds in
reserve would convert to additional accumulated actuarial surplus.
STATUS OF INSURANCE CLAIMS:
3.0 Due to the confidential nature of the legal status, a future update will be provided
on the status of existing claims.
CONCLUSION:
4.0 For the 2008/2009 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. 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.
CORPORATION OF THE MUNICIPALITY OF CLARINGTON
40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L 1C 3A6 T (905)623-3379 F (905)623-4169