HomeMy WebLinkAboutFND-017-11 FINANCE Clarftwn REPORT
Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE
Date: September 12, 2011 Resolution#: - , -f I By-law#:
Report#: FND-017-11 File#:
Subject: 2011/2012 INSURANCE PROGRAM
RECOMMENDATIONS:
It is respectfully recommended that the General Purpose and Administration Committee
recommend to Council the following:
1. THAT Report FND-017-11 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, 2011 to June 30, 2012 at an approximate cost to Clarington of $782,564
be confirmed;
Submitted by: Reviewed by:
Nancy ayIor, A, C'A. Franklin Wu,
Director of Finance/ Chief Administrative Officer
Treasurer
NT/hjl
CORPORATION OF THE MUNICIPALITY OF CLARINGTON
40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T 905-623-3379
REPORT NO.: FND-017-11 PAGE 2
1. BACKGROUND
1.1 The purpose of this report is to provide an update to the General Purpose and
Administration 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 (DMIP), which is now entering its eleventh year of successful operations.
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. Clarington has held the position as-Chair of the Board of the DMIP
since its inception.
1.4 The Durham Municipal Insurance Pool (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.
1.5 DMIP's success over its 11 years has generated surplus funds since its formation
in excess of $4.4 million, set aside to offset future insurance costs resulting from
unstable insurance markets in the future or to provide the Pool with the financial
resources to fund higher deductible levels.
2. 201112012 INSURANCE CONTRACT RENEWAL
2.1 The DMIP has negotiated with the insurer to secure the broadest and most
comprehensive coverage available to municipalities and includes such things as
property coverage, liability coverages and various other policies.
2.2 The increase for the 2011/2012 premium year for Clarington's contribution to the
DMIP to cover insurance costs and necessary contributions to claims reserves is
$49,817 or a 6.8% increase. This compares favourably to insurance cost
increases facing neighbouring municipalities and Regions in the GTA in the
range of 10% to 30%.
REPORT NO.: FND-017-11 PAGE 3
2.3 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.
3. BENEFITS OF AN INSURANCE POOL
3.1 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 against catastrophic claim
losses.
3.2 There are a number of benefits to participation in an insurance pool including:
• Control over impact of premium increases from third party insurers. Since
the premiums paid to insurers form less than one-third of the total
contributions paid by participating municipalities, annual percentage
increases by those third party insurers are spread over a much smaller
premium cost. Average contribution increases for DMIP municipalities for
insurance coverages over the last five years have been approximately 6%.
Other municipalities have faced significantly higher increased costs over
the same period.
• Since the pool self-insures a majority of claims and there is a significant
time lag before claims are paid, the interest earned by DMIP holding funds
that would have been paid to insurance companies upfront through
premiums to cover claim costs, is retained by the DMIP rather than the
insurers earning this interest.
REPORT NO.: FND-017-11 PAGE 4
• Pool members have found that we can access risk management
resources superior to those that individual municipalities could afford on
their own.
• The pool identifies legislative and regulatory issues affecting public entities
and provides information to assist members in addressing such issues.
• The pool provides significant education and professional support to pool
members.
• DMIP pool members avoid the unpredictable ups and downs of the
traditional insurance markets as rates, coverages and services are based
on DMIP exposures.
• There is greater control by DMIP member municipalities in the area of
administration, governance and claims.
• Members share in investment income as well as equity. The current
surplus of approximately $4.4 million has been set aside and will be
available to offset any future premium increases or fund higher deductible
levels or address claims reserves.
• DMIP provides assistance and advice regarding practices and procedures
aimed at reducing overall frequency of claims. There has been a marked
reduction in the overall frequency of claims.
• Member municipalities no longer pay for external adjusting fees for the
majority of claims. Over the past five years, approximately 3,500 pool
claims did not require external adjusting fees that would have been an
estimated average cost of$300 per file.
• DMIP and member municipalities have instituted a proactive claims
reporting process. This has resulted in early investigation of claims and
establishment of reserves and can then result in an early resolution,
thereby reducing overall claim costs.
• Risk management services result in loss control. 2010/2011 DMIP risk
management services included presentations and seminars to staff of
member municipalities (Non-Repair of Roads and Sidewalk Maintenance),
contract wording reviews (liability transfers, hold harmless agreements,
insurance clauses in leases etc), risk management software, and property
valuations. These items come at a cost that would not normally be
affordable for each individual municipality.
4. CONCLUSION
4.1 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 DMIP has now been in existence for a
REPORT NO.: FND-017-11 PAGE 5
sufficient period of time that these benefits are being realized on an annual basis.
It is a long-term commitment.
4.2 The strong financial result from the Pool's first decade of operations provides the
DMIP with financial flexibility to move forward to achieve its goals over the next
planning period. The future success of a Pool is largely dependent upon the
commitment of its members to support it on a long term basis.
4.3 For the 2011/2012 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.
CONFORMITY WITH STRATEGIC PLAN
The recommendations contained in this report conform to the general intent of the
following priorities of the Strategic Plan:
_ Promoting economic development
X Maintaining financial stability
Connecting Clarington
_ Promoting green initiatives
Investing in infrastructure
_ Showcasing our community
Not in conformity with Strategic Plan
Staff Contact: Nancy Taylor, B.B.A., C.A., Director of Finance/Treasurer