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HomeMy WebLinkAboutFND-018-14 If this information is required in an alternate accessible format, please contact the Municipal Clerk at 905-623-3379 ext. 2102 ' f rr i� Report Finance Department Meeting: General Purpose and Administration Committee Date: September 22, 2014 Resolution: 4� � By-law: Report: FND-018-14 File: Department File#: Subject: 2014/2015 Insurance Program Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: a) That Report FND-018-14 be received; b) 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, 2014 to June 30, 2015, at an approximate cost to Clarington of$930,914 (net of reallocation) be confirmed; c) That Clarington's contribution reduction of $64,023 resulting from an updated allocation amongst pool members be transferred to the Self-Insured Losses Reserve; d) That Clarington's share of the $1.5 million Durham Municipal Insurance Pool surplus funds being distributed back to pool members in the amount of$202,950 be deposited to the Self- Insured Losses Reserve with recommendations to be included in the 2015 budget for risk management initiatives to reduce future claims; e) That Clarington strongly encourage the Association of Municipalities of Ontario to continue to seek joint and several liability change in Ontario and Association of Municipalities of Ontario be advised; and f) That the Attorney General of Ontario be petitioned to reconsider their decision to not proceed with proposed solutions to provide some reasonable limits on the impacts to municipalities of joint and several liability and the Attorney General's Office and local members of Provincial Parliament in Durham Region be so advised. Submitted by: ' �f' Reviewed by: N ncy Ta or;B CP'A, CA Franklin Wu, Director of Finance/Treasurer Chief Administrative Officer NT/hj I Municipality of Clarington Report FND-018-14 Page 2 Report Overview 2014/2015 has been a very successful year for the Durham Municipal Insurance Pool and Clarington has benefitted strongly through a 0% premium increase, reallocation savings of $64,023 and a distribution of surplus of$202,950 to be used for future risk management initiatives. This report also seeks to further support the Association of Municipalities of Ontario by recommending continued pressure upon the Attorney General's Office of the Province of Ontario to reform joint and several liability in Ontario which has been denied, despite all parties of the legislature passing a motion in the spring of 2014 to implement a solution. Background 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. 2. This report also includes a review and update of the Durham Municipal Insurance Pool, which is now entering its fourteenth year of successful operations. 3. Clarington is a founding member of the Durham Municipal Insurance Pool 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 Durham Municipal Insurance Pool since its inception. 4. The Durham Municipal Insurance Pool 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. 5. Member municipalities are provided with coverage in the areas of general liability, errors and omissions, auto liability and property insurance. The Durham Municipal Insurance Pool provides municipal specific resources such as loss prevention programs, site audits and training. 2014/2015 Insurance Contract Renewal 6. Within the terms of the subscribers' agreement, the Durham Municipal Insurance Pool 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. Municipality of Clarington Report FND-018-14 Page 3 7. The Durham Municipal Insurance Pool 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. 8. The insurance premium portion of the Durham Municipal Insurance Pool levy has remained stable over the last five years. By virtue of being part of any insurance pool, the Durham Municipal Insurance Pool members avoid the unpredictable ups and downs (cycles) of the traditional insurance markets. In addition, rates, coverage and services are based solely on Durham Municipal Insurance Pool 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 2014 and into 2015. 9. Annually, the Durham Municipal Insurance Pool allocates the cost of the program to its members in the form of member contributions. It is their objective that annual contributions are sufficient to cover the total cost of the insurance premium, the payments for all self- insured claims, the administration costs and the risk management costs (including actuarial and audit services) for each year. 10.When the cost of purchasing the insurance coverages for 2014/2015 is combined with the amount of funds that must be set aside for self-insured claims and the investment income anticipated for the 2014/2015 period the total increase before the levy reallocation contribution from member municipalities will be 0%. 11.When compared to other municipalities who are facing significant increases for this year in insurance premium costs, the DMIP is well positioned to mitigate large fluctuations in insurance premium costs. This was one of the founding principles upon with the Durham Municipal Insurance Pool was established in 2000 and is now working to the advantage of the member municipalities given this year's funding levy will remain at the 2013 amount (0%). 12.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. Benefits of an Insurance Pool 13.The main components of the structure of the Durham Municipal Insurance Pool arrangements are summarized as follows: • Each municipality retains their respective current 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; Municipality of Clarington Report FND-018-14 Page 4 • 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. 14.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 the Durham Municipal Insurance Pool, holding funds that would have been paid to insurance companies upfront through premiums to cover claim costs, is retained by the Pool 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 Durham Municipal Insurance Pool member municipalities in the area of administration governance and claims. • Members share in investment income as well as equity. The Durham Municipal Insurance Pool surplus will be further discussed below. • Member municipalities no longer pay for external adjusting fees for the majority of claims. Over the past five years, in excess of 3,500 pool claims did not require external adjusting fees that would have been an estimated average cost of $300 per file. • Durham Municipal Insurance Pool 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. Municipality of Clarington Report FND-018-14 Page 5 6 During this most recent policy year, the Durham Municipal Insurance Pool has sponsored/conducted the following Risk Management Educational Sessions: • A presentation on "Amendments to Minimum Maintenance Standards"; • A presentation on the "Minimum Maintenance Standards Compliance Review"; • A Fleet Safety Training Seminar; • A By-Law Enforcement presentation; • A Building Inspection Risk Management session; • A "Preparing for Examination for Discovery" seminar; and • Future sessions that are being contemplated include a Host Liquor Liability/Alcohol Policy session with Pool members Parks and Recreation Staff. Re-Basing of Pool Allocation 15.Under the "Subscribers Agreement for the Purchase of Insurance" which was signed by Council when the Durham Municipal Insurance Pool was formed, the authority to secure insurance and set member contributions was delegated to the Pool's Board of Directors, which is comprised of the Treasurers of the six member municipalities. 16.The allocation of premiums, self-insurance contributions and Pool operating costs between the members has remained unchanged since the Pool was formed back in 2000. Since that time, which Clarington has experienced some growth in facilities, road assumptions, populations, etc., it has not occurred at the same pace as in Ajax and Whitby. 17.As a result, it was determined that actuaries assist in the re-determination of the allocation of pool costs. The result of this review is that Clarington's share of the costs has reduced from 13.7% to 12.8%. See the following chart for the updated allocation. Municipality Allocation Increase/Decrease Current Updated Ajax 14.3% 17.6% 23.1% Brock 4.1% 2.5% 39.0%) Clarington 13.7% 12.8% (6.6%) Durham Region 42.5% 39.2% (7.8%) - Scugog 5.1% 4.1% (19.6% Uxbridge 4.6% 3.9% (15.2%) Whitby 15.7% 19.9% 31.2% Total 100.0% 100.0% 0.0% Municipality of Clarington Report FND-018-14 Page 6 18.To mitigate the impact on Ajax and Whitby, the Pool Board agreed to phase-in the re- allocation increase over a three year period. Going forward, the Board approved the re- basing of the allocations every four years. This will ensure that all members pay their fair share and will also minimize the wide swings experienced with less frequent reviews. 19.Clarington will experience cost savings of $64,023. It is recommended that for this year, the savings be transferred to the self-insured losses reserve for use in future risk management strategies. Cost savings for 2015 will be incorporated into the operating budget. Durham Municipal Insurance Pool Surplus Distribution 20.The Durham Municipal Insurance Pool continues to be financially stable. Any surplus for the Pool that is generated due to investment income and better than expected claims experience is to ensure that the Pool has sufficient resources for unexpected or adverse development of claims. As KPMG, the Durham Municipal Insurance Pool actuarial consultant has stated: "Any adequate financial position provides the Pool with a level of safety and financial soundness so that it is not vulnerable to adverse business and economic conditions." 21.It was KPMG's position in 2011 and this has recently been reconfirmed that: "For all relevant benchmarks, excluding investment return, the Durham Municipal Insurance Pool surpasses the industry benchmarks for financial strength." 22.Based on the current financial results of the program with confirmation from its actuaries and auditors, the following resolution has been unanimously approved by the Board of Directors to approve the payment of a $1,500,000 dividend to the Pool members. "The Board of Directors of the Durham Municipal Insurance Pool (DMIP) agree to distribute $1.5 million in surplus funds to the founding subscribers as stated in the executed Subscribers Agreement as follows: DMIP Participation Share Allocation Rate $ Ajax 14.33% 214,950 Brock 4.05% 60,750 Clarington 13.53% 202,950 Durham 42.94% 644,100 Scugog 5.03% 75,450 Uxbridge 4.54% 68,100 Whitby 15.58% 233,700 Total 100.00% 1,500,000 The Board of Directors further agree to recommend that each members share be re- invested into their local insurance Reserve Fund to provide for future program costs related to their insurance and risk management requirements." Municipality of Clarington Report FND-018-14 Page 7 23.It is recommended that Clarington's share of the Durham Municipal Insurance Pool surplus distribution in the amount of $202,950 be deposited into the Self Insured Losses Reserve. Recommendations will be brought forward in the 2015 budget for risk management initiatives to aid in reducing future claims. Recommendations may include such items as training, risk assessments, additional sidewalk replacement program support, etc. Joint and Several Liability 24.Earlier this year, Clarington supported a strong push by Association of Municipalities of Ontario to seek joint and several liability reform by pursing the combined model. 25.Joint and several legislation (also known as the 1% rule), may oblige a defendant which is only 1% at fault, to pay the entire judgement which unfairly puts the burden of paying the majority of liability losses on Ontario municipalities. 26.After many years of effort, it appeared that the Ministry of the Attorney General was willing to act and reform the outdated principle of joint and several liabilities in the Province of Ontario. 27.In the spring of 2014, all Parties in the Legislature passed a motion which called on the government to implement a solution by the summer. 28.In the Association of Municipalities of Ontario's policy update dated August 21, 2014, municipalities were advised: "On joint and several liability: The Attorney General, the Hon. Madeline Meilleur advised that she was not going ahead with any of her Ministry's proposed solutions to provide some reasonable limits on the impacts of joint and several liability. In the spring, all Parties in the Legislature (including the Liberals) passed a motion which called on the government to implement a solution by this summer. The province is offering no lifeline for municipal governments when it comes to this matter and is siding with the trial lawyers and Law Commission of Ontario. (The Commission only reviewed joint and several liability in the context of the Ontario Business Corporations Act, legislation which does not apply to the municipal circumstance.) Delegates were extremely disappointed with the news, after a year of solid work to arrive at a potential solution that would help address a portion of the challenge. Association of Municipalities of Ontario has advised the government that it will not be easing up. Municipal governments cannot afford to be the insurer of last resort when at minimal fault or to assume the responsibility of others' mistakes." 29.It is therefore recommended that the Association of Municipalities of Ontario continue its efforts in this regard and that the Attorney General of Ontario be petitioned to reconsider her decision to not proceed on much needed changes to this legislation. Concurrence 30.Not applicable Municipality of Clarington Report FND-018-14 Page 8 Conclusion 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 Durham Municipal Insurance Pool has now been in existence for a sufficient period of time that these benefits are being realized on an annual basis. For the 2014/2015 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. Strategic Plan Application The recommendations contained in this report conform to the Strategic Plan. Staff Contact: Nancy Taylor, Director of Finance/Treasurer, 905-623-3379 ext. 2602 or ntaylor @clarington.net The following is a list of the interested parties to be notified of Council's decision: Association of Municipalities of Ontario Attorney General of Ontario Members of Provincial Parliament (Durham Region)