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HomeMy WebLinkAboutFIN 12/99 - ~\\ OF PIC ~O.~ ~ :da ti ~ REPORT TO COUNCIL C 04bJ.... FROM: Gillis A. Paterson Director of Finance & Treasurer DATE: June 22, 1999 REPORT NUMBER: FIN 12-99 SUBJECT: Renewal of the General Property and Liability Insurance Program for the 'fown of Pickering for the Period July 1, 1999 to July 1,2000, Extendable to July 1,2002 RECOMMENDATION: Thnt the Executive Committee recommend to Council that: I. the Town of Pickering renew its general property and liability insurance coverage through the Frank Cowan Company as outlined in Attachment II 1 for the period July 1, 1999 to July I, 2002, to be approved annually, with the 1999/2000 total renewal premium of $245,485 plus applicable taxes; ~ 2. the purchase of "Y2K Insurance" as oull illed on Attachment #2 be approved; the Director of Finance and Trcnsurer be authorized to make application l'or the coverage and the cost be charged to General Government appropriation for insurance; 3. the Director of Finance and Treasurer, as part of the Risk Management Program, be authorized to cuntinue 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 Town's interest to dQ so; 4. the Director of Finance and Trensurer be authorized to pay the total cost of any insurance claims sell led that 1:111 bctween the previous deductible and the new one, including any adjusting and legal fees, from the Insurance Reserve Fund; 5. the difference between the total 1999/2000 insurance premiums plus applicable taxes and the amounts included in the 1999 Current Operating Budget for insurance be transferred to the Insurance Reserve to provide runding for costs related to the General Insurance and Risk Management Programs; 6. the Director of Finance and Treasurer be authorized to engage the services of a risk managcment/insuranee consullant to assist in reviewing, analyzing and reporting on options lar thc 2000 renewal including rcnewing with the present carriers, insurance pools and tendering with funding to be provided by a transfer from the Insurance Reserve; and, 7. the appropriate officials of the Town ofl'ickering be given authority to give effect thereto. Director of Finance & Treasurer \ , \ '. \ - ORIGIN: \_- AUTHORITY: The Municina\ Act. Sections 251 to 253 Report to Council FIN 12-99 Date: June 22, 1999 Subject: Renewal of the General Property and Liability Insurance Program for the Town of Pickering for the Period July 1, 1999 to July I, 2000, Extendable to July I, 2002 Page 2 - FINANCIAL IMPLICATIONS: The renewal premium of $245,485 represents a decrease of $74,378 or approximately 20 per cent from the expiring premiums of the prior year, exclusive of applicable taxes. With the three year guarantee, all other conditions remaining unchanged, this results in a total savings of approximately $223,000. Transferring the premium savings to the Reserve will provide funding for payment of claims falling with the increased deductibles, finance any costs of setting up an insurance pool or tendering insurance and risk management programs. EXECUTIVE SUMMARY: Each year on July I, the Town'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 o[ various alternatives to traditional insurance including an insurance pool for Durham Region. - In 1998 the Town of Pickering embarked in a Risk Management Progranl, the initial phase of which involved negotiating renewing premiums with the Town's broker, the Frank Cowan Company, resulting in a decrease o[ approximatcly $72,000, or 20 percent, in premiums [rom 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 trans[er of approximately $50,000 to the Insurance Reserve Fund. During the course of 1998 and the first half of 1999 a further review of deductibles, coverages, policies, procedures, adjusting services and pooling was undertaken. While more work remains to be undertaken in regards to some o[ the issues raised in the 1998 report, pooling was explored extensively. The Treasurer, together with the Treasurers of the other area Municipalities in the Region of Durham, explored all aspects of the concept of an insurance pool [or Durham Region. The Consultant, Dion Durrell and Associates, Actuaries and Insurance Consultants, assisted with most of the work in exploring options and the specifics of a pooling concept. Furthermore, a meeting was held with representatives from the Region of Waterloo insurance pool to learn from thcir prior ycars experience with this conccpt. At the same time other options were continued to be explored including renewal with the Frank Cowan Company. - In summary, while the pool continues to be an attractive concept it does carry with it certain risks, uncertainties and the possibility of additional costs. While safeguards would be put in place to minimize the foregoing, a pool by its very nature, is not a complete transfer of risk to a third party (insurers) and will involve additional administrative costs. Under the pool concept, the Town of Pickering would assume additional risk. If the pool experienced higher claims, the Town of Pickering's cost would increase. Members of the Frank Cowan Company were invited to participate in this pooling concept and they too put forth a proposal in addition to their renewing premiums under a traditional insurance program. Their proposed pool does not appear to offer the savings of the Durham Pool or renewing with Cowan's. On a straight comparison basis (ie. apples to apples) it appears that the proposal to renew with the Frank Cowan Company is the least cost option for the forthcoming year and carries with it a thr~c year rate guarantee, which, unless unexpected events or adverse market conditions occur, provides a ceiling for future' ,- year's premiums. We feel that this was result of several actions occurring simultaneously, being the exploration of the insurance pool, continued negotiations with the Frank Cowan Company, and a soft insurance market. Exploration of any and all possibilities wiIl continue throughout 1 000 ~\I...{t ')onn 111 "r,tll"'r tn ".,COIIf." thOlt .1...", 'r"lun'co fll'"t'n t""t'ln'lu",11t" ",..n of .1,,, In",,..{- .....nn,..a,ln "......to.('t Report to Council FIN 12-99 Date: June 22, 1999 ,,-. Subject: Renewal of the General Property and Liability Insurance Program for the Town of Pickering for the Period July 1, 1999 to July 1,2000, Extendable to July 1,2002 Page 3 As previously mentioned, this year's renewing premium is considerably less than that of 1998 and is close to the 1992 premium as noted below: ]989 - $255,512 1990 - $270,842 ] 991 - $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 Therefore, it is recommended that a renewal be undertaken through the Frank Cowan Company which includes a three year rate guarantee. BACKGROUND: Insurance Pool ..-. A pool concept can be a good one, especially during periods of high premiums and hard markets. Many lose their advantages during periods of soft markets and low premiums. This appears to be the case today. Moreover, the purchase of insurance, by its very nature, is the transfer of the risks, legal liability, claims payment responsibility and administration to the private sector. Furthermore, the cost of insurance includes the cost of external expertise. None of the foregoing should be treated lightly when considering alternative arrangements such as a pool. Over the coursc of the last phase of the examination period, some assumptions appcar to have been revised to produce difTerent results for consideration. For example, the initial discussions revolved around a $175,000 group deductible, $1 million estimate of total small losses and a 100 per cent confidence level that the actual experience would be less, or better, than the estimates. Adjusting for the withdrawal of the Town of Whitby and using figures provided by the consultant, the pool savings estimated at $485,000 for all the municipalities after 3 years versus $1.4 million in total savings after renewal through Cowan's. The consultant presented its final results based upon a $350,000 group deductible, $350,000 to $700,000 estimate of total small losses, with $1 million being called the worst case scenario, and a 95 per cent, or less, confidence level. This method produced an estimates savings of approximately $2.6 million versus the $1.4 million mentioned above. Cowan's information with the exception of an improved "Cowan Pool" proposal have remained unchanged since being presented. Renewal with Cowan, based upon the original assumptions cmployed in the analysis, appears as cost effectivc or bctter than the pool. Furthermore, sincc the pool savings, should thcn matcrializc, would be paid out at the end of thrce years at a minimum, they must be discounted. Using the actuary's own assumptions, the savings would appear to be reduced by approximately $140,000. Investment income may offset some of this reduction. Savings from the reduced premiums proposed by Cowan are realized each year at the time of paying the insurance premiums. - Revised analysis from Cown's to equate their pool with the proposed pool, reveals that renewing with Cowan's to be almost as cost effective as the proposed pool, with the Cowan pool being marginally the most cost effective. ( \ \-. Outstanding Issues Report to Council FIN 12-99 Date: June 22, 1999 - Subject: Renewal of the General Property and Liability Insurance Program for the Town of Pickering for the Period July I, 1999 to July 1,2000, Extendable to July 1,2002 Page 4 It should be noted that in joining such a pool the Town of Pickering will be assuming responsibility for approximately 20 per cent of claims of all the other municipalities, excluding Oshawa and Whitby. Claims against an upper tier government are usually large given their responsibilities for police, water, sewer, waste and major roads. An unknown quantity is the effect of downloaded services, ego Ambulance. In turn, they will absorb a portion of Pickering's claims. This aspect has not been reviewed. Still to be discussed are all aspects of the "Subscribers Agreement" of which a copy of another pool's has been provided. It contains certain clauses that could be problematic. Governance has not been discussed nor has claims management and legal representation. It has been agreed that our current adjusters will be retained. Future cost sharing arrangements will be a major discussion item. Given your Treasurer's previous experience in insurance and setting up pools, the desired level of understanding and comfort is still to be attained. Insurers have not been reviewed, and discussed by the group. Most of the major aspects of a pool are still to be discussed and agreed upon. Nevertheless, the possibility of Pickering participating in a pool in Durham is not being totally dismissed at this time. There arc, however, in the opinion of the writer, too many unresolved questions still to be addressed. An increase in deductible from $10,000 to $20,000 is not being recommended at this time as it does not appear to be cost effective. Options .-. In 1999 a local finn, Pine Ridge Insurance Brokers Limited in Ajax, met with the Treasurer to explain the municipal program they represented called Muni-Pro. On June 16, 1999 an unsolicited bid was rcceived from this company. While the total dollar premium stated looked allractive, insufficient details were provided to comment on the appropriateness of this program in the Town of Pickering. Furthermore, time does not permit an examination, insurers must be identified and policy wordings must be provided and compared to our existing coverages and an in-depth analysis of coverages and costs must be undertaken. Services, such as inspections, claims audits, risk management and advice are all currently received as part of the package. It is unknown whether this company offers the same level of service. Further meetings must be held to learn the complete details of the program and the companies involved. This will be undertaken in time for the 2000 renewal. Given all of the foregoing, together with the current work load of the Treasurer, it is recommended that an independent outside consultant be retained to advise the Treasurer. While none have been contacted, need was not heretofore identified, a cost estimate cannot be provided at this time. The Treasurer will undertake very means to ensure cost, service and benefit are balanced. Insurance Reserves This years renewal maintains the higher levels of deductible approved by Council in 1998. By putting the savings aside in the 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 Insurance Reserve Fund currently has a balance of $3 76, 146 as at December 31, 1998. .- Y2K Insurance 19981report to Council N~. \-- \ \ In the area of Risk Management, reference should be made to the TR23/98. Included in the Recommendations is a provision for the purchase of what is called Y2K InC'llro:1nl"n h",inn nrrnrelorl fnr 11"11' firc-t i:n.,,.. 1..." ,1.,1"11 17..."....1... 1',.,.11,nn. I'ro.._............, 'lTl'lIt. ".~....t^..,..fn.',1 .....nf Report to Council FIN12-99 Date: June 22, 1999 ,11"" Subject: Renewal of the General Property and Liability Insurance Program for the Town of Pickering for the Period July 1, 1999 to July 1,2000, Extendable to July 1,2002 Page 5 this is unique in Municipal insurance and will provide limited levels of protection to the Town under certain conditions for this "occurrence". The Treasury will make application for the insurance, purchase same, assuming reasonable terms and cost, and charge the premium to the appropriate account. Conclusion Cost alone is not a reason to alter an insurance program. The "low bidder" principal does not apply in a business that relies upon protection coverage and service. Our present broker and insurancc carriers have provided sound advice and good service for many years. Decisions to alter the program or change insurers cannot be taken lightly if the best interest of the Town and its ratepayers are to be preserved. Traditional insurance must be purchased until, and it~ a pool is put in place, therefore, renewal with Cowan's is recommended. AfT ACHMENTS: 1. 1999-2000 Insurance Program 2. Y2K Contingent Liability Insurance ,-. Prepared/Approved / Endorsed By: ~ ~q-~-? ---::= ~ Gillis A. Paterson Director of Finance & Treasurer GAP:vw Attachments Recommended for the consideration of Pickering Town Council Thomas J. Quinn, Chief Administrative Officer - \-. ~ \ \.