Stephanie Sinnott, Executive Director Finance Services/ Treasurer, City Manager's Office

Transcription

1 Public Report To: From: Report Number: Finance Committee Stephanie Sinnott, Executive Director Finance Services/ Treasurer, City Manager's Office FIN Date of Report: December 1, 2015 Date of Meeting: December 10, 2015 Subject: Durham Municipal Insurance Pool File: D Purpose The Durham Municipal Insurance Pool (DMIP or Pool) was established in 2000 which created an opportunity for the area municipalities to join together to protect the participating municipalities from increasing insurance premium costs by structuring an alternative risk financing program with a high deductible and collectively self-insuring claims within the deductible. The Pool also offers claims and risk management services. Periodically, over the last several years, the City of Oshawa has explored the Pool as an option to provide the City s corporate insurance program. The purpose of this report is to provide Council an overview of the current status of the DMIP and some information on the potential implications to consider should the City opt to join the Pool. 2.0 Recommendation That the Finance Committee recommends to City Council: 1) That Staff work with the DMIP representatives to explore the possibility of joining the Pool and engage an Actuary to complete a review of the City s ten-year claim history; 2) An operating budget amount for Actuarial consulting services in the amount of $20,000 be included in the City s 2016 operating budget; and 3) That Staff report back to Council on the quantitative and qualitative analysis supporting a go-forward recommendation regarding the City s corporate insurance coverage in relationship to the Pool to determine if joining the DMIP is prudent. 1

2 Meeting Date: December 10, 2015 Page Executive Summary The City of Oshawa is currently insured through a traditional insurance market, where an insurance broker places insurance coverage with the appropriate insurance companies in relation to risks specific to the City. The Durham Municipal Insurance Pool is comprised of six of the area municipalities and the Region of Durham that have collaborated to manage the risks and place insurance coverage for its members collectively. The DMIP membership consists of: The Region of Durham, and the municipalities of Ajax, Brock, Clarington, Scugog, Uxbridge and Whitby. 4.0 Input From Other Sources Durham Municipal Insurance Pool 5.0 Analysis 5.1 City s Insurance Coverage Background In 2014, an in-depth review of the City s corporate insurance program and an RFP process resulted in a change to the City s insurance provider from Frank Cowan Company to Jardine Lloyd Thompson Canada Inc. (JLT) at a savings of over $200,000 annually as compared to prior year premiums. The contract with JLT commenced in 2015 and may be extended for up to four additional one-year terms, subject to favourable pricing and satisfactory service. 5.2 Durham Municipal Insurance Pool Background In July 2000 the DMIP was formed and consisted of seven member municipalities: The Region of Durham, Ajax, Brock, Clarington, Scugog, Uxbridge and Whitby. The City of Oshawa and City of Pickering did not join, as they concluded their premiums were at a reasonable level and the advantages of joining were not evident. In 2005, the City explored the possibility of joining the Pool and DMIP facilitated an actuarial study. The City and DMIP cost shared in the completion of the study but the results did not provide compelling arguments for the City to join at that time. In late 2015, Finance Services staff met with representatives from DMIP to obtain an update on the current status of the Pool and to explore potential implications and related process should the City be interested in joining the Pool. Representatives of DMIP indicated that at its last renewal the Pool showed strong financial performance, risk management and loss prevention are key objectives for DMIP and the Pool has proven to be a highly effective method to minimize the cyclical nature of the insurance marketplace providing stability to Pool members and ultimately taxpayers. 2

3 Meeting Date: December 10, 2015 Page DMIP Advantages and Stability In 2015, the Region of Durham released Finance and Administration Committee Report 2015-F-55 that provided an overview of the Pool s financial performance and outlined the benefits of membership. The benefits outlined include: Increased flexibility and responsiveness to the needs of the members Greater control of administration, governance and claims administration Active member involvement in insurance and risk management Customized loss control and risk management that includes customized member training and education programs Stable insurance premiums in the long term Interest earned on funds invested remains with the Pool, rather than with insurance company Economies of Scale The report provided an overview of the Pool s financial performance that indicated the Pool is financially stable and fiscally sound. This was, in part, due to returns on investment income and better than expected claims experience. Based on the 2014 financial results, the Pool declared a surplus of $1,500,000 and each Pool member received a share allocation of the surplus funds. It was recommended that each Pool member re-invest its share into their local insurance reserve fund. 5.4 Items of Consideration City staff recently met with DMIP administrators to gain an understanding of the process and items for consideration should the City express interest in joining the Pool. DMIP outlined several items that require consideration: DMIP would require written direction from Oshawa City Council indicating the intent of the City to join the pool. An up-to-date actuarial review would be required to examine the City s claims history and projected risks. This would determine the effect on the Pool s current financial model, as pooled costs are allocated across municipalities on an actuarial basis. The estimated cost of an actuarial study would be in the range of $15,000 to $20,000 and could be at the sole expense of the City. The City would be required to provide the Actuary with detailed documentation pertaining to valuation of fleet vehicles, buildings, other property and contents along with a ten-year claims history analysis. If the City decides to join the pool, the Subscribers Agreement containing the terms and conditions of the pooling arrangement, which currently includes a minimum three year commitment to remain in the pool, would need to be signed. 3

4 Meeting Date: December 10, 2015 Page 4 The City would have no financial stake in existing monetary reserves maintained by the Pool. After joining, the City would participate in monetary reserves or shortfalls that accumulate following the date of joining. DMIP pooled insurance concept is an Integrated Risk Program. Insurance coverage, such as municipal liability, property and automobile fleet liability, are arranged for its members in a pooled format. However, certain lines of coverage are not included in the DMIP s integrated program including crime, environmental liability and cyber liability. These are covered under separate policies that are procured and managed by DMIP for those members wanting these coverages. The Pool s annual renewal date is July 1. The City s annual renewal date is January 1. The City would be required to either bridge the existing coverage or break its current insurance contract early; therefore potentially incurring a monetary penalty, declining as the contract ages. The City would still be subject to the current practice of paying the under deductible claims using its own funding source. Currently the City carries a $100,000 deductible across all lines of coverage, for liability, automobile and property claims. 6.0 Financial Implications If the City were to proceed with exploring the possibility of joining the Durham Municipal Insurance Pool, an actuarial analysis would be required at an estimated cost in the range of $15,000 to $20,000. Negotiations could be undertaken with the DMIP for potential cost sharing of the review. It is anticipated that, should the City join the Pool, annual premiums may be more expensive in the initial years of the contract. Over time, it is expected that there could be long-term financial advantages realized by the City. The DMIP annual costs are allocated to each pool member based on an actuarial review and include annual income earned on investments, insurance premium, claim payment fund, professional services, a minimal pool management fee and the annual investment income earned. Financial penalties could be incurred if the current corporate insurance contract required early termination. 4

5 Meeting Date: December 10, 2015 Page Relationship to the Oshawa Strategic Plan This report supports the Oshawa Strategic Plan goal of Accountable Leadership by ensuring respect, responsiveness and transparency. Stephanie Sinnott, Executive Director Finance Services/Treasurer, City Manager's Office 5