Loading...
HomeMy WebLinkAboutFND-010-13 C1aFftWR REPORT FINANCE DEPARTMENT Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE Date: September 09, 2013 Resolution#: By-law#: Report#: FND-010-13 File#: Subject: 2013/2014 INSURANCE PROGRAM RECOMMENDATIONS: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report FND-010-13 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, 2013 to June 30, 2014, at an approximate cost to Clarington of $994,937 be confirmed. f 4 l Submitted by: Reviewed by: Nancy T I rr,B ,C A,CA Franklin Wu, Director of Finance/Treasurer Chief Administrative Officer NT/hjl CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T 905-623-3379 REPORT NO.: FND-010-13 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 thirteenth 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 Member municipalities are provided with coverage in the areas of general liability, errors and omissions, auto liability and property insurance The DMIP also provides municipal specific resources such as loss prevention programs, site audits and training 2. 2013/2014 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 22 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 REPORT NO.: FND-010-13 PAGE 3 23 The insurance premium portion of the DMIP levy has remained stable over the last five years By virtue of being part of an insurance pool, DMIP members avoid the unpredictable ups and downs (cycles) of the traditional insurance markets In addition, rates, coverage and services are based solely on DMIP exposures Industry experts anticipate that the trend is for Municipal Insurance premiums to continue to rise and experience upward pressures on rates through the remainder of 2013 and into 2014 24 The increase for the 2013/2014 premium year for Clarington's contribution to the DMIP to cover insurance costs and necessary contributions to claims reserves is $120,534 or an 13 78% increase This compares favourably to insurance cost increases facing neighbouring municipalities and Regions in the GTA in the range of 10% to 30% 25 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 REPORT NO.: FND-010-13 PAGE 4 32 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 • 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 • Pool members have found that we can access risk management resources superior to those that individual municipalities could afford on their own • The pool provides significant education and professional support to pool members • 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 $5 million has been set aside and will be available to offset any future premium increases or fund higher deductible levels or address claims reserves • 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 included presentations and seminars to staff of member municipalities, 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 REPORT NO.: FND-010-13 PAGE 5 4. CONCURRENCE - Not applicable 5. CONCLUSION 51 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 sufficient period of time that these benefits are being realized on an annual basis 52 For the 2013/2014 year the Durham Municipal Insurance Pool has been successful in obtaining a reasonable insurance placement 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 , CPA, C A , Director of Finance/Treasurer List of interested parties to be advised of Council's decision None