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HomeMy WebLinkAboutFND-015-17Finance 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: October 16, 2017 Report Number: FND-015-17 Resolution: File Number: By-law Number: Report Subject: 2017/2018 Insurance Program Recommendations: 1.That Report FND-015-17 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, 2017 to June 30, 2018, at an approximate cost to Clarington of $900,653 be confirmed; 3.That Clarington’s share of the $4.2 million surplus funds, amounting to $544,740 be utilized for risk management and claims prevention projects as identified; and 4.That the purchase of cyber liability coverage through the Frank Cowan Company at a cost of $21,600 be confirmed. #GG-436-17 Municipality of Clarington Report FND-015-17 Page 2 Report Overview 2017/2018 has been another successful year for the Durham Municipal Insurance Pool and Clarington has benefitted strongly through a 4.5% premium decrease. Due to the changes in the global risk environment, Clarington has also purchased cyber liability coverage. 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 seventeenth year of successful operations. 1.3 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 of Chair of the Board of the Durham Municipal Insurance Pool since its inception. 1.4 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. Agreements were executed to facilitate the City of Oshawa joining the Durham Municipal Insurance Pool effective July 1, 2017. All pre-existing surpluses are protected for the founding members. 1.5 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. Municipality of Clarington Report FND-015-17 Page 3 2. 2017/2018 Insurance Contract Renewal 2.1 Within the terms of the subscriber’s 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. 2.2 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. 2.3 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. The actuaries for the Durham Municipal Insurance Pool have allocated costs across the municipalities on an actuarially determined basis, utilizing considerations for current exposures, claim frequency and claim severity. The Board of Directors approves this levy allocation methodology every three (3) years. Clarington’s allocation for 2017/2018 is 12.42%. A transition period will be established to blend City of Oshawa into the allocation methodology. 2.4 When the cost of purchasing the insurance coverages for 2017/2018 is combined with the amount of funds that must be set aside for self-insured claims and the investment income anticipated for the 2017/2018 period, Clarington’s share of the total decrease will be 4.5%. 2.5 We have also secured a three (3) year rate stability agreement with the Frank Cowan Company, which is a significant benefit for the Durham Municipal Insurance Pool members. 2.6 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 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); Municipality of Clarington Report FND-015-17 Page 4 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 (7) 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 During its seventeen years of existence, this innovative risk financing venture continues to be a highly effective method by which the municipalities have enjoyed: Broader insurance coverage; Control over the costs of insurance claims below the $500,000 deductible; Pro-active, comprehensive and coordinated risk management services to reduce property and liability exposures; Increased investment income on the retained portion of the pre-funded claims loss reserve; and Accumulated savings from reduced premium costs. 4 Durham Municipal Insurance Pool Surplus Distribution 4.1 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. 4.2 Upon consultation with the Durham Municipal Insurance Pool’s actuaries and based on Durham Municipal Insurance Pool’s financially stable and fiscally sound results, the following resolution has been unanimously approved by the Durham Municipal Insurance Pool Board of Directors directing the payment of a $4,200,000 dividend to the Pool members. Municipality of Clarington Report FND-015-17 Page 5 “The Board of Directors of the Durham Municipal Insurance Pool agree to distribute $4.2 million in surplus funds to the founding subscribers as stated in the executed Subscribers Agreement as follows: DURHAM MUNICIPAL INSURANCE POOL Member Amount ($) Ajax 635,460 Brock 129,780 Clarington 544,740 Durham 1,826,580 Scugog 186,060 Uxbridge 172,620 Whitby 704,760 Total 4,200,000 The Board of Directors further agrees to recommend that each members’ share be re- invested into their local Insurance and Risk Management Reserve Fund to provide for future program costs related to their insurance and risk management requirements.” 4.3 The 2017/2018 renewal for Durham Municipal Insurance Pool has been proven successful strategically and financially. Continued positive claims experience and stable investment income resulted in Durham Municipal Insurance Pool’s ability to return its third dividend within the last four (4) years. 4.4 Clarington’s share of the Durham Municipal Insurance Pool surplus distribution in the amount of $544,740 was deposited into Self Insured Losses Reserve, to be used for risk management initiatives. In consultation with Department Heads, funds have been allocated for continued rural road safety audit work ($293,740), sidewalk repair ($196,000), cyber security training ($15,000) and cyber risk assessment ($40,000). The rural road safety audit work includes proper signage for approximately 100 horizontal curves and the upgrade of 75 short-term roadside hazard priorities. Medium and long- term priority roadside hazards identified in the rural road audit study will be addressed in future years. 5 Cyber Insurance Coverage 5.1 To a great extent, traditional insurance policies are excluding or not responding to data breaches. The Frank Cowan Company advised the Durham Municipal Insurance Pool that beginning with the 2017/2018 policy year, separate insurance coverage would be required to protect Durham Municipal Insurance Pool members from claims resulting from the unauthorized access of confidential information. Municipality of Clarington Report FND-015-17 Page 6 5.2 Due to this changing nature of global risks, Clarington has secured cyber liability coverage that required a detailed application process including risk assessments and cyber awareness training evidence, etc. 6 Status of Insurance Claims 6.1 Each department in the Municipality has a role to play in risk management practices to reduce claims, as well as claims handling practices to reduce exposure when claims are received. Ongoing training occurs, both as components of annual departmental training programs, as well as specific risk management or claims handling seminars co-ordinated or hosted through the Finance Department. Risk inspections are also undertaken. 6.2 Currently, there are approximately 56 outstanding claims with an estimated financial impact of $2.4 million. As referenced above, Clarington pays the deductible and the balance of the costs are covered through the Durham Municipal Insurance Pool and the Frank Cowan Company. This forms part of the annual municipal insurance budget. 6.3 The bulk of the claims relate to slips, trips and falls on municipal sidewalks and motor vehicle accidents. 7 Concurrence – not applicable 8 Conclusion 8.1 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 Durham Municipal Insurance Pool has not been in existence for a sufficient period of time that these benefits are being realized on an annual basis. The Durham Municipal Insurance Pool has been in place for seventeen years and is an outstanding achievement in alternative service delivery. 8.2 For the 2017/2018 year, the Durham Municipal Insurance Pool has been successful in obtaining a favourable insurance placement with minimal cost increases and expanded coverages. 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, as well as placing separate cyber liability coverage with the Frank Cowan Company. Municipality of Clarington Report FND-015-17 Page 7 9 Strategic Plan Application The recommendations contained in this report conform to the Strategic Plan. Submitted by: Reviewed by: Nancy Taylor, BBA, CPA, CA, Andrew C. Allison, B. Comm, LL.B Director of Finance/Treasurer CAO Staff Contact: Nancy Taylor, Director of Finance/Treasurer, 905-623-3379 ext 2602 or ntaylor@clarington.net There are no interested parties to be notified of Council's decision