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� � REPORT TO COUNCIL
FROM: Gillis A. Pntcrson DATE: January I 1, 2000
Director, Corporate Servias & Treasurcr
REPORT NUMBER: CS 01/00
SUBJECT: Properly and Liubility Insurance
RECOMMENDATION:
That Report CS 01/00 of the Dircctor, Corpornle Services & Treasurcr be received by Council
and that Council udopt cither option:
I. Thc City of Pickcring rcncw its property, liability and othcr covcrages through thc Frank
Cowan Company at a 2000/Oi renewal premiwn of u maximum of 5245,485 plus applicable
taxes for the period July I, 2000 to July 1, 2001 inclusive. (In 1999 Council approvcd a three
ycar program with Cowan with a maximum nnnual prcmium thal may bc reJuceJ);
OR
2. Thc City of Pickcring panicipatc in thc Durham Insurancc Pool at an estimatcd unnual
prcmium of $303,000 plus opplicnblc Iaxes annually for the initial undcnvriting pr,riod of
March 1, 2000 to Mnrch I, 2003 inclusivc.
ORIGIN:
Council Requcst Octobcr 4, 1999
AUTHORITY:
Thc Municipal Act, Seclions 251 and 252, R.S.O., 1990 as umcndcd
FINANCIAL IMPLICATIONS:
tion 1
P�taintaining our property, liability, and other insurance with the City's present cartiad through
tl;e Fmnk Cowan Company will not result in eny cost increnses for the years 2000 and 2001
based upon the existing assets covered;limits of coverngc and claims us wc have guarantecd
muximum premium of $245,000 annually for the period luly 1, 1999 to July 1, 2G00. (It is also
enticipatcd that further reductions will be nvailable at rcncwal timc in Iune, 2000.)
The major bencfits of purchasing insuranco in the trndilional market arc:
I. wilh tho purchase of insurance our costs arc fixed nnd financial und other risks minimizal;
2, the savings eamed by lhe City lhrough reduced premiums in 1998/99 stay with thc City.
r 4Pl14ll.�
Parlicipation in thc Durhom Insurencc Pool et a prcmium of S30J,000 will rcsult in an incrcascd
ennual coet of approximetely 558,000, over our 1999/2000 budge6 7'he rotal incrcascd cost
would theroforo bc et tcast 5174,000 which the Region indicetea to be rotumal to thc Ciry et the
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�� 2 Report ro Council CS 01/00 Date: lanuary 1 I, 2000
Subjxt: PropeAy and Liability Insuranco Page 2
end of Ihc 3 yenr undenvriting period, nssuming no aJdilional claims or cosls. This funding
rcquircmeM could bc me¢ through nn incrcasc in taxcs or a rcduction in contribulions to the
City's Insurance Rcscrve.
EXECUTIVE SUMMARY:
At this timc Ihere is no way of guurnntccing thc results of onc option or nnothcr. 'therc is one
gcnerrl rulc of insurancc though that may apply — safety iu large numbers - ic. sprcad Ihc risks
across the largest number of participnnts possible �hereby limiting the financial exposurc and risk
to nny one participant to n minimum. A pool of five relatively small participants and onc much
largcr would not appcar to fit that rulc. At this limc, all aspccts considcrcd, rcmaining with our
prcsent insurers is the best option. This way our msls arc known, fixed with n ttiling for thc
next two years nnd adJitional wsts �vill bc avoideJ. Furthermorc, Ihere shoulJ nol bc any tax
incrc�e as u rosult nnd the savings from prior ycars prcmium rcduclions will romnin with thc
Ciry. Morcovcr, wc anticipatc furthcr savings with thc 200U rcnewal.
BACKGROUND:
In Oclobcr, 1999 Council rcyucslcd a rcport on Ihc ��arious options reg;mling insurancc for
Council to considcr bcforc Ihc cnd of 1999. In anticipation of that rcport, in Novcmbcr, 19991hc
C.A.O. of the lhcn Town of Pickcrin„ at a mecting uf all C.A.O.'s in Durham Rcgion, rcquesled
u mceting with thc Trcazurcrs, C.A.O.s and thc Consi;ltant to gc1 a bcucr undcrstanding of nll
aspccts of thc insurancc �woling urrangcmcnt bcing pro�scJ by Ihc Region. On lunuary 7, 2000
thal mccting was wmcncJ and reprcscmali��cs of nll municipalitics aucndaf w;th the exccption
of uny from Oshawa nnd thc C.A.O. of Ihc Rcgion. Ar �his snmc nireting thc RcgionuJ sra,(%
lndicared rhar �he�� u•oufd he re�rorring to thcrr Counril soon a� U�c Poo! u�id dml rhis iroiJd he
one ojfl�c fast opportunirics jor Pickcring fo confirnt its irucnlions. (77ie Region kas Inrgcled a
dn�c ojbinrch 1, 1000 jor dic s�nrring ojthc Poop. Tlmr, mgcnc�r wirG dic originnl Cuimcil
rcyucsl, riccrssiru�rd diis rcpor� hcing prirnred �a put hcjore Counci! uf tlils fime.
AttachcJ lo Ihis rcport as AppcnJix 2 is Ihc prcscntalion by thc Consultant, Dion, Durtcll and
Associatcs Inc.
BUfII1t3! CASq
At �he limc of thc rcnewal in July 1999, the Frank Cowan Company extendcJ nn offcr of a Ihree
year ratc guarantee wilh a maximum unnual premium oC 5245,000, based upon exisling tctms,
conditions and ;�vcragcs. Council approvcd renewing wiih Cowan and in July, 2000 the first
year will bc up for rcnewal. Wc are rcasonably confident thxt thc guarnntcal maximum prcmium
of 5245,000 will be further reduccd Ihrough continuing ncgotiations.
Since assuming responsibiliry for insurance in 1998 the Trcnsurcr, with Ihe approval nn�
encouragement of the C.A.O. has continuously rcJuced prcmiums. '(he 1997 prcmium was
approximately $378,000 nnd in 1998 this was rcduced to approximately 5303,000. In 1999 it
was funhcr reduced to upproximntely 5245,000 und it is anticipatcd that funhcr rcductians will
bc negotiated bcforo thc lune 30, 2000 expiry date. Wc havc bccm m�nnging our own nffairs in
rcgards to insurnnce and premiums und will now bc et thcir lowcst Icvcls sincc thc 19804. This
has bccn achicvcd through u combination of ncgotiations, rcvisions to the program, and a soft
market.
7'he Durham�lnsurancc Pool is o(%ring n prcmium of 5303,000 ennunlly bcing thc 1998�'99
expiring premium for thc initial thrcc ycar unJenvriting period, This, 6eing npproximately
SS8,000 higher than our currenl prcmium, will necessitate an ir:�ease in tares or a mluction in
other budget cxponditurca. Thcy havc opted to usc thc 1998 expiring prcmium so as to pro��iJc
the finencial "cuahinn" in casc it ia ncedcd; to provide u contribution to Ihc rcscrve fund; and to
provido litnda to rctum to tho participanu as the "aavings". Thc diffcrence of 558,�100 will bc
held in a Reservc fund to be managed by Ihc Region along with that of lho ncxt two � for e
totel oCS174,000.
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- Repoct to Counci) CS Ol/00 Date: January I 1, 2000 O' 3
Subjxh Property and Liebiliry lnsurancc Page 3
Thc City is operating on 1999 prcmiums which nrc onlicipnled to bc fudher rcduced providing
potrntial funds for Pickering purposes now.
Thc Pool wili be managed by a"Board" made up of the Trcasurcrs, Thc Rcgion will be hiring
additional staff to run the Pool. Administration costs arc currcntly cstimated to total 3300,000
for thc 2000/01 prcmium year, This will bc paid for out of the participants pren�iums.
ATTACHMBNTS:
L Appendix I Summary of Options re Purchnse of Insurance
2, Appendix 2 Consultant's Presenintion
Preparcd / Approvcd / Endarsed By:
Giliis A. Pnterson,
Direclor, Corporale Scrvices & Treasurcr
GAP:vw
Attachmcnts
Copy: Thomas J. Quinn, ChieCAdministrativc Officcr
Rccommendcd for the consideralion of
Pickering Ciry Council
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Th6mu§ 1. uinn, Chie Adm� isirntivc �cer
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o i � Arr�tEr�r a � To a�o�rr es o i�oo
APPENDIX 1
City o( Pickering
Property and Liability Insurance
Summary of Alternatives
There nrc three busic options nvnila6lc et this timc:
1. traditional purohase of insuroncc in the market through u broker;
2. participation in nn insurance pool; and
3. participation in nn insurance reciprocnl.
At the Council mceting of October 4, 1999 u Nolice oCMotion to pndicipatc in the esmbiishment
of a Durham Municipal Insurance pool was debated nnd lost on recorJeJ vole. As part of that
debatc [ was rcqucsted to prcpare a rcporl on various insurance options Por Council to consider
before the cnd of 1999, thcrcforo 1 was requircd to hnve this report uvailable no later than the
Exccutive Committce meeting of Decembcr 13, 1999. Sincc �hat tima we have continued to
participatc in meetings with thc participants of the Durham Insurancc Pool, su I havc since the
concept wus initinted. I 6ave rcceived one unsolicited bid Gbm a broker rcpresenling other
insurers in unolher fortn of pool; had discussions with the consultanis ncling for thc Rcgion in
this mattcr; and, had discussions with rcprescntatives of a reciprocnl.
I, Traditional Purchnsc of Insumncc
The City of Pickcring has hnd its insurance coveragcs artunged through Qic Frank Cowan
Company for many ycars. Premiums havc changccf considcrubly ovcr Ihc period with lhc latest
round of incrcascs in thc eurly 1990's bcing signif cnnt,
In thc summcr of 1998 the Treasurcr took ovcr responsibility for insurancc nnd risk manngcment
in the Cily of Pickering. Through u fortuitous combinatian af ncgolialing in u solt mnrket, the
1998/99 renewal prcmium for Ihe City dccrcaseJ by approximately 20% or $75,000 from
$378,000 in 1997 to 5303,000 in 1998. In the spring of 1999 this prcmium was again reduced by
another 19% (approximately) or 558,000 to 5245,000, thc samc lcvel as in 1980s nnd in 1992.
The writcr continucs to work with rcpresentatives of Cowan's und turther reduclioos are
aolicipated at this time. However, the 1999/2000 rcnewul also includcd a maximum thrcc yeaz
rate guarantee assuming current leveis of coverage and claims.
Some discussions hnvc been heid with other brokcrs, however, policy coveragcs uud wordings
have not becn provided for consideration so no conclusions could bo drawn. Tha geneml
di�culty is thut many insurcrs nnd brokcrs ara unfmniliar with thc municipal mnrkct nnd
themforc are either reluctant or unablc to provide the completc packegc offered by Cowan. Thc
largcst municipalities can ba an exception to this. It should be mentioned that thc purchasc of
insumnce through Cowan brings with it purticipation in an "open markct pool" of the largat
number of municipalities in Canada. Cowen and its insurers cover moro municipalitics ncross
Canada than any other broker wc nrc aware of.
2. Participatian in nn Insurancc Pool
Thc Durham Municipal [nsurence Pool has been undcr considcrntion for scvcrnl ycars ns a
counter measurc to increasing premiums o few yeurs ego, Howcver, Pickcring's prcmiums havc,
for onc reaaon or another, becn ablc to bc rcduced over thc last two ycurs.
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Malysis by thc Rcgion'a conaultnnt on thc fortnetion of thc pa,l haa concludcd that by ��'S
incrcasing tho group deductiblc, 6cyond levels prcvioualy cansidered, finencial viability should
bc achievcd. To rnsuro this, funding will be bused upon 1998/99 expiring premiums, which es
notedi eerlicr in this report have dcercnscd by 538,000 in 1999/2000 renewals. This mighl bc
met through a lax incrcasc or by rcducing the annunl conlribution to the City's Inaurance
Reserve, This will mean an incrcase of 558,000 to Ihe City of Pickering in 2000 and oach of the
two yenra theroaRer for a lotal of 5174,000, plus any further decreases negotiated with Cowan's.
This amount will 6a put in a roserve fund to bc administered by the Rogion end, if claims
experience is good, the funds will be returned to us, wilh any interest eamed, in three years time,
thereby apparently producing the "snvings" often rcfcrted to. Other considerations includc:
!. Increuse in costs of administration and risk managemcnt if none currentiy exists.
2. Discrepancies in risk managcment programs amongst thc participants.
3. Unexpected severe cluims.
4. Unexpected increaso of annual ussessment.
5. Difticuities in escape mechanism And tnking your linbilities with yrou.
6. The mazket is still very soR and competitivc nnd can oRen provida premium quoles lower
than the pools premium.
Furthertnore, this pool has thc oppearance of nn infortnnl "6oard" to be administercd by the
Region. While administrative, legnl, and claims loss models have not been discussed, Regional
staff hnve cicarly indicated their intent to hirc ndditional stal�lo implement their model. All such
costs will be paid by thc paAicipants in the pool.
3, Pnrlicipation in an Insurancc Recinrocal
The Ontario Municipal Insurance Exchange (OMEX), made up of municipalities from various
parts of Ontario. 1 wns instrumentnl in the fartnation of OMEX and wns n member until
approximutely 199G when Mctropolitun Toronto withdrew,
I have had scvernl mcctings with rr,prcsentntivcs of the Municipal Elcctric Association Insurunce
Exchangc (MEARIE) in rcgarcis to ihc possibiliry of cxpanding their operation to providc thc
insurnncc for municipalities. I undcrstnnd thcy curtcntly covcr all municipal clectrical utilities in
Ontario. This is o major wnsidcration for ihcm and thcir Board must dctcrtninc thc lincs of
business in which thcy wish to paAicipate. Thcsc discussions hud becn positive and encouraging
however, Ihe board must still rcach a conclusion which, I have recentiy bcen informed, they hevc
reuched preliminnry agreement in fnvour of pursuing ihis line of business.
1 have also considered participation in nnothcr but similar, form of a pool through enother
independent brokcr however details were not sufTicient to drow n conclusion.
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� � �Waterloo Region Municipalities Insur�nce Pool '
016
Statement of Income and Unappropriated Surplus
Year Ended May 31,1999
Actual Budget
(nae 61
INCOME .
Subscriber levies f4,000,004 54,000,000
EXPENSES
Claims and adjustment Pxpenses incurred 1,461,164 1,500,000
Uncluding reserve (or unpaid claims prwision • note 2)
Insurance premium 1,705,071 1,500,000
Implementation costs 169,249 0
OperaNng expenses
Salaries, wages and bene0ts 152,959 1 d2,839
Professional fees 115,541 150,000
Other admtnistrative expenses 22,977 67,161
3,220,961 3,400,000
OperaNng tncome 771,043 600,000
Imrestment Income 129,399 0
EXCESS OF INCOME OVER EXPENSES (or fhe year 900,442 600,000
UNAPPROPRIATED SURPLUS, end of year (note 4) 5900,442 f600,000
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APPPNDIX 2
la�nnon PooUn� Amn`emeal
Jraoiy 7, i0W
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F��aNlIfOAW perdJm
lI.OM/p.OM ynep�
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Overvlew ot Poollag
Wrao-Dry 1mMcf
' No chv��e b MunkiplMy dahciiWa
' f.�iAiny tljuqa rtlulmJJ�n pnarcd
• Cauerv4lrt dmini�nlfro bud`N emvn qq
qwli�y dminiNnllve xniaa
• Rhk mw�em�N rya6nm milaeJ m ncad� of
�uvlkiry/l
' Weurlao Mngrvn ryorcn ncm�
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,;.rTnrNt4�►,� i n _a__TO REPQRT11�91�0�
Overvlew of Poolla�
NHd4 Podln�f
• All muJciplhla InwcJ Iqqlct
• IMrynW arm{n md IImW
' Thu Inxl� of diduc�iblu
' Wuldeduclibh
� QwP dedati6M (P�ls� r�r�anem)
� AItnW �d�dat@b (•wi rd 14m yv)
� Faxa ud yyep4 inwrYKNRinfurvlx ptdtnbn
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Overvlew of Pooling
BmSJIa
• Munkiqli�lamo�cnlingbqvclwecottnge
cdlminly rd muuge � grour dcduAible
' Cormge. �q+e'nd Il�ibiliry
' Cml Su6il�ly. ry JiamMlily uf cmt ortt lime
•CmIERKkrcy•mulmlmmeofimmuKSdolhn ��,
�• Conirol • Infammion, �cw� w ul�(mnk fid W m
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Ecoaomla of Pooling
Rrmhm2[vyCam�wr4an (7Alan.�
n n.
Dewdpin (L�Wr4ql (Owtr) MI
Im'iAeTawinn "!}A���bbb'lI74S.b68 —lI78.6d'
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Adr�InlYlYinn . . {JOO,oO
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Eeonomlu af Pooling
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{urr�lad) plw pin ra tlH I.tun
� itppN� 10 �Ilfultnc0 n114N t)tlp d�nYk111�
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' d�kofMrwueumal limiidlla!nwaM�olrmq
' Fonu on cml eliicknry;
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i993 f9W,0oo N71,OOO SO
im se»,nuu 5���,aq p�
I9f7 s711.o0o s731.000 fo
199! f609�000 fiW�qlO f0
AvrnRe f1W1,000 f563,000 s0
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