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HomeMy WebLinkAboutFND-019-19Clarftwn Finance Department Report If this information is required in an alternate accessible format, please contact the Accessibility Coordinator at 905-623-3379 ext. 2131. Report To: General Government Committee Date of Meeting: June 17, 2019 Report Number: FND-019-19 Resolution: GG -411-19 File Number: By-law Number: Report Subject: 2019/2020 Insurance Program Recommendations: That Report FND-019-19 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, 2019 to June 30, 2020, 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 FND-019-19 Report Overview Page 2 2018/2019 has been another successful year for the Durham Municipal Insurance Pool (DMIP) and the Municipality of Clarington has benefitted through a 2.9% (2018 — 3.4%) premium increase. 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 nineteenth year of successful operation. 1.3 Clarington is a founding member of the DMIP 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. 1.4 Clarington's Treasurer held the position of Chair of the Board of DMIP from inception to September 2019. The current chair of the Board is Nancy Taylor, Commissioner of Finance/Treasurer for the Region of Durham. A transition back to having a lower tier representative acting as Chair is ongoing with Sheila Strain, Treasurer for the Town of Ajax taking over for Nancy Taylor. 1.5 The DMIP 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. The City of Oshawa joined the pool effective July 1, 2017. 1.6 Member municipalities are provided coverage in the areas of general liability, errors and omissions, auto liability and property insurance. The DMIP provides municipal specific resources such as loss prevention programs, claims handling, advice for boards and committees, site audits, review of contracts and training. Municipality of Clarington Page 3 Report FND-019-19 1.7 The Municipality's insurance coverage renews on July 1, 2019, without renewing the insurance coverage the Municipality would be at financial risk. 2. 2019/2020 Insurance Contract Renewal 2.1 Within the terms of the subscribers' agreement, DMIP 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 DMIP members are also required to give a minimum six months' notice of termination if they wish to leave the pool. To date no member of the pool has asked to leave while one of the two Durham municipalities that did not originally found the pool have asked to be admitted. 2.3 The DMIP 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. 2.4 For 2019/2020, 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 2019/2020 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 2.9 per cent. The inflation factor experienced in the broader municipal sector is ranging between 6 and 8 percent. 2.5 We also continue to benefit from a three year rate stability agreement with the Frank Cowan Company, which is a significant benefit for the Durham Municipal Insurance Pool members. Essentially, premium increases are a direct relation to increased volumes as unit prices for vehicles and property remain the same. 2.6 The 2.9% increase reflects the conditions in the broader insurance marketplace, including general increase in judicial awards, the increasing litigious nature of society and insurance rate increases for weather related events, such as hurricanes and wildfires. 2.7 The Board of Directors of the Durham Municipal Insurance Pool has placed coverage with the Frank Cowan Company for an integrated pooling arrangement. Municipality of Clarington Page 4 Resort FND-019-19 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 (liability) and $5,000 (fleet); 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 ($25,000 in the case of Clarington); 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 nineteen 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. 3.3 As the DMIP is self-funded to a degree, there are opportunities for surpluses to be refunded to the Municipality. The Municipality has received refunds in 2014 ($202,950), 2016 ($223,500) and 2017 ($544,740) for a total refund of $971,190. 3.4 At the May DMIP Board meeting it was approved that from 2020 to 2028 the founding members (including Clarington) would receive an annual payment from the accumulated surplus in the pool. It is estimated, subject to annual review, that the Municipality will receive $91,100/year. In keeping with past practice this will be used to fund risk management initiatives (including safety audits, sign replacement, and other projects which lowers the risk to the Municipality and residents). Municipality of Clarington Resort FND-019-19 Page 5 4. Non -Pool Alternatives Overview 4.1 If the Municipality were to exit the DMIP it would have to look for outside insurance providers. There are several considerations to making a decision like this. 4.2 There is no guarantee that the Municipality would see savings by leaving the DMIP. The overall municipal insurance market in Ontario is becoming less competitive with fewer providers of insurance. Further, with escalating costs in Ontario (in part due to joint and several liability) providers are charging larger premiums. 4.3 If the Municipality left the pool its insurance coverage would be based solely on its claims history rather than being part of a pool. This has the effect of increasing volatility in the premium cost. In good years premium increases may be low while following years of a claim or two there could be double digit increases in premiums. 4.4 Recently the City of Ottawa was faced with a 25% increase in premiums, and a reduction in claim limit from $25million to $10million, due to several major incidents over the past six years. In January when Ottawa went to market only their incumbent provider would provide coverage, this provider was Frank Cowan (who is also the DMIP insurer). 4.5 The pool mitigates the volatility for all members by allowing the claims history of all members to be used to determine the overall risk for the insurer. If one municipality has a bad year it is offset by a municipality that may have had a better year. All municipalities benefit from the ability to get insurance at a lower rate than they may otherwise be able to achieve at deductibles that make sense to them. City of Pickering 4.6 In the Region of Durham there is only one municipality which is not a member of the Durham Municipal Insurance Pool. The City of Pickering uses a difference insurance provider, currently Jardine Lloyd Thompson Canada Inc. (JLT, which recently purchased Marsh in 2019). 4.7 It is important to note that coverages received by the Municipality of Clarington differ from those of the City of Pickering which does impact the insurance premium each municipality pays. Municipality of Clarington Resort FND-019-19 Page 6 4.8 The City of Pickering has a $5,000,000 general liability limit for any one occurrence and in aggregate during the policy period (they have purchased excess liability to provide aggregate up to $50,000,000). The City also has a $100,000 deductible. The Municipality of Clarington has a $50,000,000 general liability limit for any one occurrence, with no annual aggregate limit. The Municipality's general liability deductible is $25,000. 4.9 The City of Pickering must adjudicate its own claims or hire an outside party to do so. The Municipality of Clarington's claims are adjudicated by the DMIP, or a party hired and paid for by the DMIP. Adjudication costs from a third party could be approximately $120/hour with a typical minimum of approximately $1,000. 4.10 The City of Pickering also has staff dedicated to the insurance portfolio whereas the Municipality of Clarington does not. Staff time with insurance in Clarington is mainly liaising with the pool rather than administration and adjudication of claims. 4.11 Based on the 2018/2019 year: x 52 claims were adjudicated internally by the DMIP. This is a service value of at least $52,000. x 66 new claims during the year, at least 1 is already above $25,000. 18 of these new claims are bodily injury claims which most likely will result in amounts greater than $25,000. 4.12 Based on the approximate $400,800 difference in premiums: x At least $52,000 of the difference would be attributed to claim adjudication; x It is estimated that an increase in the deductible to $100,000 would result in increased costs to the Municipality of $161,000 on average. Some years could be higher or lower than this amount. This increased volatility would require the Municipality to budget for reserves to cover increased claims. x Training for insurance related matters such as changes to the construction act, cannabis legislation, risk management training, would have all been in addition to the premium paid for insurance. This is a value of thousands of dollars per year that benefits staff and taxpayers. 4.13 At this time, Staff feel that the Municipality benefits through lower deductibles, increased training, risk management expertise, claims adjudication services, and stable insurance premium costs provide support that the DMIP is meeting the needs of the Municipality in a cost effective manner. Municipality of Clarington Page 7 Resort FND-019-19 5. Concurrence Not Applicable 6. Conclusion It is respectfully recommended that Council approve the renewal of insurance services with the Durham Municipal Insurance Pool. 7. Strategic Plan Application Not applicable. Submitted by: /—I-"- Trevor Pinn, B.Com, CPA, CA, Director of Finance/Treasurer Reviewed zh, Andrew C. Allison, B. Comm, LL.B CAO Staff Contact: Trevor Pinn, Director of Finance / Treasurer, 905-623-3379 ext.2602 or tpinn@clarington.net There are no interested parties to be notified of Council's decision.