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HomeMy WebLinkAboutFND-013-15 Finance Department Report If this information is required in an alternate accessible format, please contact the Municipal Clerk at 905-623-3379 ext. 2102. Report To: General Government Committee Date of Meeting: September 8, 2015 Report Number: FND-013-15 Resolution: C File Number: By-law Number: Report Subject: 2015/2016 INSURANCE PROGRAM Recommendations: It is respectfully recommended that the General Government Committee recommend to Council the following: 1. That Report FND-013-15 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, 2015 to June 30, 2016, at an approximate cost to Clarington of $937,536 be confirmed; and 3. That Clarington strongly encourage the Association of Municipalities of Ontario to continue to seek joint and several liability change in Ontario and that the Association of Municipalities of Ontario be advised. Municipality of Clarington Report FND-013-15 Page 2 Report Overview 2015/2016 has been a very successful year for the Durham Municipal Insurance Pool and Clarington has benefitted strongly through a very minor 0.7% premium increase and increased integrated policy limits. This report is primarily an update to Council on the status of the DMIP and current initiatives being undertaken. 1 .0 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 fifteenth 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 as 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. 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. 2.0 2015/2016 Insurance Contract Renewal 2.1 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. 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. Municipality of Clarington Report FND-013-15 Page 3 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 DMIP 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 years. Clarington's allocation for 2015/2016 is 12.6%. 2.4 When the cost of purchasing the insurance coverages for 2015/2016 is combined with the amount of funds that must be set aside for self-insured claims and the investment income anticipated for the 2015/2016 period the total increase will be 0.7%. 2.5 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. 3.0 Benefits of an Insurance Pool 3.1 The main components of the structure of the Durham Municipal Insurance Pool arrangements are summarized as follows: 3.2 Each municipality retains their respective current deductibles ranging from $5,000 to $100,000 (Clarington's deductibles are primarily $25,000); 3.3 The pool self-insures losses between these local deductibles and a per claim limit of $500,000 (on a group basis) for integrated coverages; 3.4 Under this structure, local municipalities are responsible for funding losses from $0 to their individual deductible amounts; 3.5 Between these local municipal deductibles and the pooled retention limit of$500,000, the seven members share the cost on a collective basis; and 3.6 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. 3.7 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 approximately 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 Municipality of Clarington Report FND-013-15 Page 4 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. • Member municipalities no longer pay for external adjusting fees for the majority of claims. It is estimated that Pool member municipalities have realized savings in excess of approximately $2 million in adjusting costs over the last ten years. • 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. 4.0 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. In September 2014, the financial strength of the DMIP was illustrated when DMIP distributed back to pool members $1.5 million in surplus funds based on the approximate $9.5 million in accumulated surplus reported in the DMIP's June 30, 2014 audited financial statements. 4.2 It was 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 to be used for risk management initiatives. To date, funds have been allocated for a road safety audit, sidewalk grinding, risk management training, an IT risk assessment, a parking lot risk review, and rural trees. Municipality of Clarington Report FND-013-15 Page 5 5.0 Joint and Several Liability 5.1 Last year, Clarington supported a strong push by Association of Municipalities of Ontario to seek joint and several liability reform by pursing the combined model. 5.2 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. 5.3 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. 5.4 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. 5.5 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." 5.6 It is therefore recommended that the Association of Municipalities of Ontario continue its efforts in this regard. 6.0 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. 6.2 Clarington has incurred 193 claims over the past five years that have resulted in approximately $1.8 million in net payments to date. Currently there are approximately 50 outstanding claims with an estimated financial impact of $3.1 million. As referenced above, Clarington pays the deductible and the balance of the costs are covered through Municipality of Clarington Report FND-013-15 Page 6 the DMIP 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. 7.0 Risk Management 7.1 As Council is aware, the Frank Cowan Company presented the Municipality of Clarington with the inaugural $10,000 Excellence in Municipal Risk Management Award at the Federation of Canadian Municipalities Sustainable Communities Conference Award Ceremony on February 11, 2015. This is an example of the dedication of the municipal staff towards risk management initiatives and reflects a cross-departmental effort to improve business practices. 8.0 Concurrence - Not applicable 9.0 Conclusion 9.1 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 now been in existence for a sufficient period of time that these benefits are being realized on an annual basis. The DMIP has been in place for 15 years and is an outstanding achievement in alternative service delivery. 9.2 For the 2015/2016 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. Strategic Plan Application The recommendations contained in this report conform to the Strategic Plan. Municipality of Clarington Report FND-013-15 Page 7 Submitted by: / �'� Reviewed by: Nanby Tayr, BB C A, CA Franklin Wu, Director of Finance/Treasurer Chief Administrative Officer NT/hjl 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