HomeMy WebLinkAboutCS 11-02
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REPORT TO COUNCIL
FROM:
Gillis A. Paterson
Director, Corporate Services & Treasurer
DATE: May 21,2002
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REPORT NUMBER: CS 11-02
SUBJECT:
2002/2003 Property and Liability Insurance
RECOMMENDATION:
It is recommended that Report CS 11-02 of the Director, Corporate Services & Treasurer be
received by Council and that:
1. the City of Pickering renew its property, liability and other coverages through the Frank
Cowan Company at a 2002/03 renewal premium of approximately $329,352 plus applicable
taxes for the period July 1, 2002 to July 1,2003 inclusive;
2. the Director, Corporate Services & Treasurer, as part of the Risk Management Program, be
authorized to continue the Reimbursable Deductible Program through the Insurance Adjuster
and the Frank Cowan Company and further, that the Director be authorized to settle any
claims within the total deductible limit where it is in the City's interest to do so;
3. the Director, Corporate Services & Treasurer be authorized to pay the total cost of .any
insurance claims settled that fall between the previous deductible and the new one, including
any adjusting and legal fees, from the Self Insurance Reserve;
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4. the Director, Corporate Services & Treasurer be authorized to purchase additional insurance,
make changes to deductibles and existing coverages, and alter tenus and conditions as
becomes desirable or necessary in order to protect the assets of the City and it's elected
officials and staff; and,
5. the appropriate officials of the City of Pickering be given authority to give effect thereto.
ORIGIN:
Director, Corporate Services & Treasurer
AUTHORITY:
The Municipal Act, Sections 251 and 252, RS.O. 1990 as amended
FINANCIAL IMPLICATIONS:
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This year's premium increase is mainly the result of the tragic September 11 event. (Insurance
companies sell their risk portfolio to reinsurers to diversify their risk. The reinsurers did not
foresee and therefore, did not charge premiums to cover a September 11 occurrence. Estimated
claims from September 11 range from $45 to approximately $75 billion, and, the reinsurers have
raised their premiums to help cover the September 11 costs,) The City's premium has increased
by 27.9% of which approximately 23.9% is related to September 11 and 4.0% is due to an
increase in the value of the City's assets. Corporate staff have looked at increasing the current
deductible from $10,000 to $50,000 but the corresponding savings in premiums did not warrant
the additional risk/cost.
Report to Council CS 11-02
Date: May 21,2002 045
Subject: 2002/2003 Property and Liability Insurance
Page 2
EXECUTIVE SUMMARY:
Not applicable
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BACKGROUND:
Each year on July 1, the City's general liability and property insurance policies come up for
renewal. As approved by Council at the time of the 1998 renewal, the Treasurer undertook an
extensive review of all aspects ofthe City's insurance program. The City of Pickering embarked
in a Risk Management Program, the initial phase of which involved negotiating renewing
premiums with the City's broker, The result of the negotiations was a decrease of approximately
$75,000 or 20 percent, in the premiums from that of the prior year, This premium was also
approximately $98,000 less than the 1998 budget provision which, after claims under the
increased deductible were paid, resulted in a transfer of approximately $50,000 to the Self
Insurance Reserve.
In 2000, 2001 and. 2002, the review of deductibles, coverages, policies, procedures, and
adjusting services has continued. In 1999 approximately $92,000 was transfeITed to the Self
Insurance Reserve as a result of the continued savings. In 2000 and 2001, the amount of
$100,000 in each year was included as a revenue item in the annual budget. For the 2002
budget, $50,000 was included as revenue. Approximately $392,000 has been saved as a
result of the City's risk management program,
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As previously mentioned, this year's renewal premium is considerably less than that of the mid
1990s as noted below:
1989 - $255,512
1990 - $270,842
1991 - $266,341
1992 - $245,656
1993 - $238,392
1994 - $257,363
1995 - $294,166
1996 - $356,865
1997 - $377,586
1998 - $302,589
1999 - $245,485
2000 - $246,628
2001 - $259,721
2002 - $329,352
September 11 and Impact on Insurance Costs
After September 11, many insurance companies have reviewed their insurance portfolios from
the perspective of reducing their risk. Some insurance companies have gone as far as not
renewing polices once they have expired. In this situation, organizations are scrambling to find
insurance coverage in a very "hard" market. The City of Pickering does not find itself in this
position. In fact, the City finds itself in the enviable position of having maintained a long
standing business relationship with the Frank Cowan Insurance Company in a "hard" market.
Many organizations have experienced substantially larger increases than the City, but our insurer
recognizes the value of long standing business relationships,
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Attachment# 1 provides a comparison of the insurance costs between 2001 and 2002 and reflects
APTA's share of the insurance costs, The major increases are in the liability, property and eITors
and omission policies, The increases to the these policies are a direct result of the higher costs
associated with the re-insurance market. The fe-insurance companies are trying to recover their
costs from the September 11 OCCUITence. These companies have to payout the claims from
September 11 and they have to also be in a financial position to cover future losses.
The insurance industry describes September 11 as a catastrophic man-made loss. The other type
of catastrophic loss is natural such as earthquakes and floods. Re-insurance companies are able
to diversify their risk from natural catastrophe risk through geographical diversification. In other
words, they do not have all of their insurance risk in one area such as Asia, Unfortunately, large
Report to Council CS 11-02
n4f>
Date: May 21,2002
Subject: 2002/2003 Property and Liability Insurance
Page 3
scale terrorist attacks usually occur in high density populated areas and economic centers and
therefore, future claims have the potential of being very large. This year's increase may be the
start of a future trend in order for insurance companies to build up their reserves.
Self Insurance Reserve
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This years renewal maintains the higher levels of deductible approved by Council in 1998. By
putting the savings aside in the Self Insurance Reserve, funds should be available to finance
predictable losses resulting from the increase in deductibles, By building up the reserve financial
flexibility to assist with future possible options is also made available. The Self Insurance
Reserve currently has a balance of $972,489.
In the area of Risk Management, reference should be made to the 1998 report to Council No.
TR23/98.
Conclusion
The City's Insurance and Risk Management Programs appear to be working satisfactory. The
City's higher deductib1es have assisted greatly in keeping the City's premiums constant for the
last few years. Therefore, renewal through the Frank Cowan Company with our present carriers
is recommended.
A TT ACHMENTS:
1. Comparison of2001 & 2002 Insurance Costs,
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Prepared 1 Approved / Endorsed By:
~Yh~~
Gillis A. Paterson,
Director, Corporate Services & Treasurer
GAP:vw
Recommended for the consideration of Pickering
City Council
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04'7
Attachment#1 To Report # CS 11-02
COMPARISON OF 2001 & 2002 INSURANCE COSTS
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2001
2002
RENEW AL
%
Inc.
LIABILITY $ 64,031.00 $ 96,047.00 50.0
ERRORS & OMISSIONS $ 15,706.00 $ 20,418,00 30.0
NON-OWNED AUTOMOBILE $ 269,00 $ 269.00 0
ENVIRONMENTAL LIABILITY $ 8,180,00 $ 9,286,00 13.5
CRIME $ 5,145.00 $ 5,.145,00 0
COUNCILLOR ACCIDENT $ 1,366,00 $ 1,366.00 0
CONFLICT OF INTEREST $ 800.00 $ 800.00 0
LEGAL EXPENSE $ 3,618.00 $ 3,618.00 0
AUTOMOBILE FLEET $ 25,816.00 $ 28,390.00 10.0
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GARAGE AUTOMOBILE $ 1,493.00 $ 1,642.00 10.0
EXCESS' AUTO LIABILITY * $ 215.00 $ 228,00 6.0
EXCESS LIABILITY $ 5,936,00 $ 5,842.00 (1.6)
PROPERTY $ 55,242.00 $ 79,692.00 44,5
ENGINEERING (B&M) $ 7,644.00 $ 8,180,00 7.0
CITY TOTALS $195,461.00 $260,563.00 33.3
PICKERING TRANSIT * $ 62,068,00 . $ 68,789.00 10.8
TOTAL ANNUAL PREMIUMS $257,529.00 $329,352.00 27,9
* Premiums paid by APT A
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