Loading...
HomeMy WebLinkAboutCS 03/99 - ,t\\\ OF PiC ~O_\ ;Z;:Lk~ tt~ REPORT TO COUNCIL FROM: Gillis ^. Paterson Director, Corporate Services & Treasurer DATE: December 7, 1999 REPORT NUMBER: CS 03/99 SUBJECT: Property and Liability Insurance RECOMMENDA TION: That Report CS 03/99 of the Director, Corporate Services & Treasurer be received by Council [or in[onnation. ORIGIN: Counci I Request October 4, 1999 ~ AUTHORITY: \ The Municipal Act, Sections 251 and 252, R.S.O., 1990 as amended FINANCIAL IMPLICATIONS: Maintaining our property liability and other insurance with the Town's present carriers through the Frank Cowan Company will not result in any cost increases for the years 2000 and 2001 based upon the existing assets covered, limits of coverage and claims. Participation in the Durham Insurance Pool will result in an increased annual cost of approximately $75,000 over our 1999/2000 renewal premium which is anticipated to be returned to the Town at the end of the 3 year underwriting period, assuming no additional claims or costs. This funding requirement could be met through an increase in taxes or a reduction in contributions to the Town's Insurance Reserve. EXECUTIVE SUMMARY: - For some time the Treasurers of a\l the municipalities in Durham have been exploring potential altematives to the traditional purchase of insurance in the market, prompted mainly by large premium increases in prior years. In early 1999 this exercise focused on the fonnation of an insurance pool. A "consultant" was hired by Durham Region Finance Department staff to explore possibilities along this line. In the Spring of 1999 that firm brought forth the pool it had helped set up in Waterloo Region. After considerable discussion it was decided to offer the opportunity to the Frank Cowan Company to put forth its proposed 1999/2000 renewal premiums and any suggestions. Durham Finance staff then gave this infonnation to the Report to Council CS 03N9 Date: December 7, 1999 Subject: Property ami Liability Insurance Page 2 ,,,,...... "consultant" who responded with a proposal made financially viable through an ll1crease 111 deductible from that originally proposed. In June of 1999 each of the Treasurers put forth to their respective Councils recommendations for renewal through Cowan's while at the same time continuing to work on the pool. It should be mentioned that the staff of the City of Oshawa withdrew from these discussions arollnd January 1999. Similarly staff of the Town of Whitby indicated they would decline to participate further around May/June 1999. Later howevcr representatives from the Region discussed the matter with the Council of that municipality which then confirmed its continuing participation. In June 1999 your Treasurer put forth a similar report clearly indicating continuing participation in the discussions. Participation in the pool could not be confirmed at that time as there were too many unknown aspects and no models for participation, administration or funding had been decided upon. Council adoptcd this report. Since then the Treasurer continued to participate in the ongoing discussions. A Notice of Motion to provide for Pickering's participation in the pool was put forth, debated and lost at the Council meeting of October 4, 1999. At that same meeting Council requested the Treasurer to report on various insurance options for Council to consider before the end of 1999. BACKGROUND: - There are three basic options available at this time: I. traditional purchase of insurance in the market through a broker; \ 2. participation in an insurance pool; and 3. participation in an insurance reciprocal. At the Council meeting of October 4, 1999 a Notice of Motion to participate in the establishment of a Durham Municipal Insurance pool was debated and lost on recorded vote. As part of that debate I was requested to prepare a report on various insurance options for Council to consider before the end of 1999, therefore I was required to have this report available no later than the Executive Committee meeting of December 13, 1999. Since that time we have continued to participate in meetings with the participants of the Durham Insurance Pool, as I have since the concept was initiated. I have received one unsolicited bid from a broker representing other insurers in another form of pool; had discussions with the consultants acting for the Region in this matter; and, had discussions with representatives of a reciprocal. I. Traditional Purchase of Insurance The Town of Pickering has had its insurance coverages arranged through the Frank Cowan Company for many years. Premiums have changed considerably over the period with the latest round of increases in the early 1990's being significant. - In the summer of 1998 the Treasurer took over responsibility for insurance and risk management in the Town of Pickering. Through a fortuitous combination of negotiating in a soft market. The 1998/99 renewal premium for the Town decreased by approximately 20% or $75,000 from $378,000 in 1997 to $3Q3,000 in 1998. In the spring of 1999 this premium was again reduced by another 25% (approximately) or $75,000 to $245,000 the same level as in 1980s and in 1992. Though the writer continues to work with representatives of Cowan's further reductions cannot be certain at this time. However, the 1999/2000 renewal also included a maximum three year rate guarantee assuming current levels of coverage and claims. Report to Council CS 03/99 Date: December 7, 1999 Subject: Property and Liability Insurance Page 3 ...... Some discussions have been held with other brokers, however, policy coverages and wordings have not been provided For consideration so no conclusions could be drawn. The general difficulty is that many insurers and brokers are unFamiliar with the municipal market and thereFore arc either reluctant or unable to provide the complete package oFFered by Cowan. The largest municipalities can be an exception to this. It should be mentioned that the purchase of insurance through Cowan brings with it participation in an "open market pool" of the largest number of municipalities in Canada. Cowan and its insurers cover more municipalities across Canada than any other broker we are aware of. 2. Participation in an Insurance Pool The Durham Municipal Insurance Pool has been under consideration for several years as a counter measure to increasing premiums a few years ago. However, Pickering's premiums have, for one reason or another, been able to be reduced over the last two years. Analysis by the Region's consultant on the formation of the pool has concluded that by increasing the group deductible, beyond levels previously considered, financial viability should be achieved. To ensure this, funding will be based upon 1998/99 expiring premiums, which as noted earlier in this report have decreased by $75,000 in 1999/2000 renewals. This might be met through a tax increase or by reducing the arumal contribution to the Town's Insurance Reserve. This will mean an increase of $75,000 to the Town of Pickering in 2000. Basically, this amount wi II be put in a reserve Fund to be administered by the Region and, if claims cxperience is good, the Funds will be returned to us, with any interest earned, in three years time, thereby producing the "savings" often referred to. Other considerations include: ;l/JIIIIIIII>. \ I. Increase in costs of administration and risk management if none exists. 2. Discrepancies in risk management programs. 3. Unexpected severe claims. 4. Unexpected increase of annual assessment. 5. Difficulties in escape mechanism and taking your liabilities with you. 6. The market is still very soft and competitive and can after provide premium quotes lower than the pools premium. Furthennore, this pool has the appearance of an infonnal "board" to be administered by the Region. While administrative, legal, and claims loss models have not been discussed, Regional staFf have clearly indicated their intent to hire additional staFf. All sllch costs will be paid by the participants in the pool. 3. Participation in an Insurance Reciprocal The Ontario Municipal Insurance Exchange (OMEX), made up of municipalities from various parts of Ontario. 1 was instrumental in the Formation of OM EX and was a member until approximately 1996 when Metropolitan Toronto withdrew. - I have had several meetings with representatives of the Municipal Electric Association Insurance Exchange (MEARlE) in regards to the possibility of expanding their operation to provide the insurance for municipalities. I understand they currently cover all municipal electrical utilities in Ontario. This is a major consideration for them and their Board must determine the lines of business in which they wish to participate. These discussions had been positive and encouraging however, the board must still reach a conclusion which, I have recently been informed, they will be doing in the near future. I have also considered participation in another but similar, form of a pool through another independent broker however details were not sufficient to draw a conclusion. Report to Council CS 03N9 Date: December 7, 1999 Subject: Property and Liability Insurance Page 4 ".... Conclusion: At this time there is no way of guaranteeing the results of one option or another. There is one general rule of insurance though that may apply - safety in large numbers - ie. spread the risks across the largest number of participants possible thereby limiting the financial exposure and risk to anyone participant to a minimum. A pool of Jive relatively small participants and one much larger would not appear to fit that rule. At this time, all aspects considered, remaining with our present insurers may be the best option. ATTACHMENTS: Not applicable. Prepared / Approved / Endorsed By: --y~ _ /----/ fl . ..-_._-~ L._ . Gillis A. Paterson, Director, Corporate Services & Treasurer GAP:vw - Copy: Thomas J. Quinn, Chief Administrative Officer \ Recommended for the consideration of Pickering Town Council Thomas J. uinn, Chief Administrative Officer -