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HomeMy WebLinkAboutFSD-032-22Clarftwn Staff Report If this information is required in an alternate accessible format, please contact the Accessibility Coordinator at 905-623-3379 ext. 2131. Report To: Joint Committees Date of Meeting: September 12, 2022 Submitted By: Trevor Pinn, Deputy CAO/Treasurer Reviewed By: Mary -Anne Dempster, CAO File Number: Report Subject: 2022 DMIP Insurance Renewal Recommendation: Report Number: FSD-032-22 By-law Number: Resolution#: JC-053-22 1. That Report FSD-032-22, and any related delegations or communication items, be received for information; 2. That the general insurance placement, in conjunction with the other member municipalities of the Durham Municipal Insurance Pool, with Intact Insurance for an integrated pooling arrangement that includes integrated insurance coverages and common self -retention deductible levels for the period July 1, 2022 to June 30, 2023, at a cost of $1,088,596 to the Municipality of Clarington be confirmed; and 3. That the purchase of cyber liability coverage through CFC at a cost of $50,500 be confirmed. Municipality of Clarington Report FSD-032-22 Report Overview Page 2 2020/2021 has been another successful year for the Durham Municipal Insurance Pool (DMIP) and the Municipality of Clarington has benefitted through a premium increase of 9.3 per cent (2021 — 7.3 percent increase). This report is primarily an update on the status of the DMIP 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 through the Durham Municipal Insurance Pool (DMIP or the Pool). The DMIP is now entering its twenty-second year of successful operations. 1.2 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. 1.3 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. 1.4 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. 1.5 The Municipality's insurance coverage renewed on July 1, 2022. At its meeting on November 25, 2019, GGC passed resolution #GG-547-19 which provided approval to remain in the DMIP for the 2020/21 renewal term and provided the Deputy CAO/Treasurer (at the time Director of Finance/Treasurer) the discretion to determine when a review of the Municipality's insurance may next be conducted, such time not to exceed five years. 1.6 Given the current state of insurance in Ontario (as noted below), that being one with escalated prices or even the refusal of coverage, Staff do not feel that this is the right time to conduct a market review given we attempted two years ago, and the insurance Municipality of Clarington Report FSD-032-22 Page 3 market as hardened more since that time. Staff will continue to monitor the market to determine the appropriate time to conduct the next review. 2. 2022/2023 Insurance Coverage Renewal 2.1 Within the terms of the subscribers' agreement, DMIP members agree to contribute sufficient funds 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 2022/2023, the DMIP negotiated with the insurer and has secured the broadest and most comprehensive coverage available to municipalities. The Municipality's increase is 9.3 per cent, or $92,245. 2.5 The allocation methodology was reviewed for 2020/2021. The DMIP reviews the allocation approximately every three years. The Municipality saw a decrease in its participation rate from 12.42 per cent to 11.06 per cent. The Region of Durham is allocated 50.65 percent for the portion of Regional activities included in the DMIP. 2.6 The Board of Directors of the Durham Municipal Insurance Pool has placed coverage with Intact Insurance (formerly Frank Cowan Company) for an integrated pooling arrangement. There has not been a change in the insurance coverage or services received by the DMIP. 2.7 For 2022/2023 the cyber insurance coverage will change from Ascent to CFC, this is the third different provider in three years. The deductible has decreased from $75,000 to $50,000, with the premium being $50,500. Overall, Staff feel that the value is fair for the Municipality and it provides protection against cyber risks. 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: Municipality of Clarington Report FSD-032-22 Page 4 • 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); • 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 ($25,000 in the case of Clarington); • 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 • 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 over 20 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 • 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), 2017 ($544,740), 2020 ($91,155) and 2021 ($91,366) for a total refund of $1,153,711. 3.4 At the May 2019 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 per 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). As part of the 2022 Budget, funds were utilized to modify certain areas of recreation facilities to improve sightlines and mitigate risk to patrons. 3.5 The estimated rebate in 2022/2023 is $96,965 which is in excess of the insurance increase for the year. These funds will be placed into the reserve for future use in risk mitigation activities. These funds will be received in June 2023. 3.6 At December 31, 2021, the balance in the Self -Insured Losses Reserve was approximately $840,327. These funds can be utilized for risk -mitigation activities Municipality of Clarington Page 5 Report FSD-032-22 throughout the Municipality. In the past, funds have been used to conduct risk audits, additional sidewalk repairs and other similar capital activities to reduce risk. These funds are primarily used to fund the Municipality's deductible. In 2022, Council approved $200,000 from this reserve to fund capital projects related to risk mitigation. Staff will be working with departments to identify risk -mitigation activities, such as risk -audits or capital improvements, to be considered to be funded from this reserve in the draft 2023 budget. Insurance Market in Ontario 3.7 The past three years have seen a hardening of the insurance market in Ontario. This hardening is cyclical, and similar situation was the reason why the DMIP was created. 3.8 Municipalities are seeing premium increases that can be in excess of 50 per cent, with many municipalities seeing at least 10 per cent increases. 3.9 The hardening markets and increased premiums have resulted in several municipalities, as well as the Association of Municipalities of Ontario (AMO), look at developing their own insurance pools modeled after the two existing pools in the Region of Durham and the Region of Waterloo. 3.10 There continues to be advocacy from municipal associations for reform to the joint and several liability legislations that currently exist in Ontario. Staff at Clarington and at the DMIP continue to monitor this development. 4. Financial Considerations 4.1 Insurance continues to be a prudent way to mitigate financial risk to the Municipality. The DMIP provides a stable form of insurance and risk management advice to the Municipality. 4.2 The rebate expected to be received in 2023 is in excess of the premium increase for the year; the increase in premium is below what other municipalities are experiencing in these markets and would therefore indicate that changing insurance providers is not advised at this time. 4.3 Insurance and deductible budgets for 2023 will be adjusted to reflect the increased cost of insurance. 5. Concurrence Not Applicable. Municipality of Clarington Report FSD-032-22 6. Conclusion Page 6 It is respectfully recommended that Council endorses the insurance program for the 2022/2023 fiscal year. Staff Contact: Trevor Pinn, CPA, CA, Deputy CAO/Treasurer, 905-623-3379 ext.2602 or tpinn@clarington.net. Attachments: Not Applicable Interested Parties: There are no interested parties to be notified of Council's decision.