CITY CLERK Insurance Program Renewal

Transcription

1 CITY CLERK Clause embodied in Report No. 5 of the, as adopted by the Council of the City of Toronto at its regular meeting held on April 23, 24, 25, 26, 27, and its special meeting held on April 30, May 1 and 2, Insurance Program Renewal (City Council at its regular meeting held on April 23, 24, 25, 26, 27, and its special meeting held on April 30, May 1 and 2, 2001, adopted this Clause, without amendment.) The recommends the adoption of the following report (March 8, 2001) from the Chief Financial Officer and Treasurer subject to the necessary funds being available in the 2001 Operating Budget. The reports, for the information of Council, having requested the Chief Financial Officer and Treasurer to consult with the City Solicitor as to whether or not the City has to pay provincial tax on property insurance and submit a report directly to Council for its meeting scheduled to be held on April 24, The submits the following report (March 8, 2001) from the Chief Financial Officer and Treasurer: Purpose: The purpose of this report is to recommend that the City s casualty and property insurance policies be renewed at their May 1 and June 1, 2001 expiry dates for a further twelve month term at a cost of $4,180,484 plus applicable taxes. Financial Implications and Impact Statement: The City s casualty and property insurance policies are renewing on May 1 and June 1 at annual premiums totalling $4,180,484 plus provincial premium tax of eight percent on all policies except automobile policies which are taxed at five percent. This renewal premium is an increase of $148,834 or 3.7 percent over the expiring premium which increased by $1,806 over the premium. Funding is provided from the City s Insurance Reserve Fund based on charges included in the 2001 Operating Budgets of Departments and participating ABCs. Recommendations: It is recommended that: (1) the City continue the casualty and property insurance policies for a term of 12 months at May 1 and June 1 expiry dates, respectively, with the insurers, limits and deductibles identified in Table 1 at a combined premium of $4,180,484 plus applicable provincial taxes; and

2 2 (2) the appropriate City officials be authorized and directed to take the necessary action to give effect thereto. Background: At its April 11, 12 and 13, 2000 meeting, City Council authorized the continuation of the City s casualty and property insurance policies for a further 12 month term. Current casualty and property insurance policies expire on May 1, 2001 and June 1, 2001, respectively. The coverages are vital to the financial well being of the City, therefore approval to continue the coverages is needed before the expiry dates. Comments: Extensive competitive insurance market quotation process have been conducted on behalf of the City for insurance placements in May, 1998 and May, The process was last conducted in preparation for the renewal and was reported to City Council at its April, 2000 meeting. The process demonstrated that consistency of market quotations obtained two years apart proved that the City is accessing the most favourable insurance terms and conditions at the most competitive premiums. After several years of soft market conditions, characterized by stable premiums and widely available coverage, the worldwide insurance market is now showing significant signs of reversing the trend. Property insurers and reinsurers are leading the way with significant premium increases for all insureds even those with excellent loss experience and loss prevention practices. Liability insurers are seeking premium increases, although to a lesser extent. This has been identified in various insurance trade publications by insurance market analysts (Canadian Underwriter & Canadian Insurance) and verified through surveying the insurance brokerage community and the risk management staff at Canadian municipalities such as St. John s, Kitchener, Mississauga, Thunder Bay, Calgary, Lethbridge, Kamloops, Surrey and Kelowna. The overall combined premiums are greater than expiring by $148,834 or 3.7 percent, increasing from $4,031,650 to $4,180,484. Table 1 shows the insurance policies requiring renewal on May 1 and June 1 along with the expiring premiums compared to the renewal premiums. Provincial premium tax of eight percent applies to each policy except on the automobile coverages where a five percent tax applies. Table 2 shows the amount and percentage premium change on each policy. The $148,834 premium increase is apportioned 90 percent or $133,920 to the property/boiler and machinery policy and 10 percent or $14,914 to the Crime, Home Day Care Liability, miscellaneous liability and Aviation coverages combined. The City s liability premiums amount to $3,086,031 or 74 percent of the total $4,180,484 premium and do not increase from the expiring premiums. The premium changes can be seen in Table 2 and are discussed below. (1) Primary and Umbrella Excess, Medical Malpractice, Automobile, Garage, Errors and Omissions and Marine Liability Insurance:

3 3 These coverages insure public liability arising out of the City s operations and includes damages from bodily and personal injury (false arrest, mental anguish, malicious prosecution, harassment, wrongful entry, libel, slander, defamation of character, etc.) and property damage. The coverages also apply to errors, omissions and duty breaches of the City s public officials (elected officials and professional employees, etc.) as well as to the City s provision of medical services (emergency medical service and services rendered by all other medical staff). Incumbent insurers were approached with the goal of obtaining renewal without any increase in premiums. That goal was achieved on these coverage premiums which make up 74 percent or $3,086,031 of the total $4,180,484 renewal premium. Due to the favourable renewal terms quoted by the main liability insurers and that an extensive marketing process was undertaken a year ago to prove competitiveness on these coverages, acceptance of the quoted premiums is recommended. Municipal liability attracts only a limited number of interested insurance companies. Municipalities must be respectful of fostering long term relationships with the limited markets when it is decided to obtain competitive quotations. Soliciting quotations each year will cause insurers to lose interest and ultimately refrain from quoting. It is important for the City to maintain continuity with its municipal liability insurer. (2) Property/Boiler and Machinery Insurance: This coverage insures against all risks of direct physical loss or damage to the City s physical assets. The worldwide property and boiler and machinery insurance market is undergoing substantial hardening with general rates increasing a minimum of 10 percent to 15 percent for insureds with no losses and 20 percent or more for insureds with losses. The increase is attributable to a world-wide trend in the property insurance marketplace to demand substantial rate increases in reaction to overall underwriting losses arising from catastrophic claim payments primarily for weather related losses. This trend is driven by forces external to the City of Toronto and it is being felt by all Canadian municipalities renewing property insurance in On the basis that the City s incumbent property and boiler and machinery insurers were not willing to offer unchanged premiums for the June 1, 2001 renewal, an extensive full competitive market quotation process was conducted whereby 12 insurers were asked for quotations. At best, any other option of coverage, retention and premium would cost at minimum $300,000 higher than the incumbent s renewal terms. Therefore despite an overall 18 percent property and boiler and machinery insurance premium increase of $133,920 over the expiring premium, it is the most competitive and favourable quote available to the City. The property/boiler and machinery combined expiring premium of $747,874 increases by 18 percent to $881,794 which is attributed to an increase in the insurance rate as applied to insured values consistent with last year of $7.568 billion.

4 4 (3) Crime, Home Day Care Liability, Aviation and Miscellaneous Liability: Conclusions: Crime coverage insures the City for destruction, disappearance and dishonesty relating to money, securities and other property. Even with the 10 percent premium increase quoted by the incumbent insurer, with all other terms and conditions remaining the same, this continues to be the most competitive arrangement for the City. Marketing of the crime insurance in 2000 showed that all other quotes required a higher deductible with significant premium increases. With claims incurred against this insurance, insurers would be less competitive now than last year. In addition, a one time membership credit will apply due to the insurer s shareholder dividend which is sufficient to offset the premium increase amount. Payment of the credit is only available if the City renews the coverage with the incumbent insurer. The Home Day Care Liability insurance premium quote of $15,000 is $4,692 greater than the expiring premium of $10,308 which is due to an increase in providers from 320 to 335. Another contributing factor is the insurer s perception that child care operations attract a high loss exposure potential as more documented cases of caregiver child abuse arise in our society, consequently greater premium is demanded. The City maintains two small liability policies at low deductibles as required through contractual agreements regarding Rapid Transit Lands and Subway Air Rights. Minimal increases of $750 to each of these coverages is required. A review of the City s contractual obligations to maintain these coverages separate from the main liability policies will be undertaken by staff before the 2002 renewal is required. The Aviation insurance premium quote of $7,064 is $897 more than the expiring premium of $6,167 which is due to marketplace increases sought by all insurers. Aviation markets are limited world wide and when large catastrophic losses are incurred in the airline industry the effect is passed on to all insureds. An extensive competitive insurance market quotation process undertaken for the insurance renewal demonstrated that the City s insurance policy costs are competitive. The insurance marketplace is generally requiring premium increases at 2001 policy renewals. Despite this trend the City is able to renew 74 percent of its total insurance cost at the expiring amount. The greatest premium increase is for the property/boiler and machinery insurance and as a result 12 alternative insurer provided quotations demonstrating that the incumbent arrangement remains the most competitive for the City. In order to meet the City s scheduling requirements to get City Council approval before the May 1, 2000 renewal date, insurance market commitments were obtained in February based on claims experience obtained in January. Insurance rates and participation are subject to re-evaluation by insurers should any large losses occur before the policy renewal date.

5 5 The insurance coverages recommended for renewal on May 1 and June 1, 2001 are underwritten by the same insurers in the same capacity as they did in the expiring term. The financial stability of the companies remains acceptable. Contact: Len Brittain, Director, Treasury and Financial Services, Tel ; Fax lbrittai@city.toronto.on.ca Jeff Madeley, Manager, Insurance and Risk Management, Tel ; Fax jmadeley@city.toronto.on.ca

6 6 Table / 2001 Annual Insurance Premiums May 1 st & June 1 st Renewals Coverage Insurer Limit Attachment 1999 Expired Premium Insurance Premium Costs for each May 1 st & June 1 st Policy Term 2000 Expiring Premium 2001 Renewal Premium May 1, 2001 Insurance Policy Renewals $ $ $ $ Primary Liability Comprehensive General Liberty 5,000,000 XS $500K SIR 1,860,000 1,860,000 1,860,000 Liability Medical Malpractice Liability 5,000,000 XS $500K SIR 110, , ,000 Automobile (Leased & Owned) 5,000,000 XS $50K / $250K SIR 397, , ,594 Garage Auto Liability XS $5K 22,453 22,453 22,453 RT Lands Liability Wellington ING 4,000,000 First Dollar 7,500 7,500 8,250 Subway Air Rights Liability Wellington ING 10,000,000 First Dollar 7,500 7,500 8,250 Home Day Care Liability Wellington ING 2,000,000 XS $500 deductible 9,042 10,308 15,000 Umbrella & Excess Liability Primary Umbrella ACE INA in ,000,000 XS $5 M primary 225, , ,000 1 st Excess Umbrella Temple / Sovereign 25,000,000 XS $25 M xs $5 M primary 97,500 97,500 97,500 2 nd Excess Umbrella Gerling Canada 25,000,000 XS $50 M xs $5 M primary 40,000 40,000 40,000 3 rd Excess Umbrella Royal & SunAlliance 20,000,000 XS $75 M xs $5 M primary 20,000 20,000 20,000 Public Officials Errors & Omissions Liability Liberty 5,000,000 XS $100K SIR 295, , ,000 Crime FM Global 25,000,000 XS $10K except $100K SIR money loss 78,250 78,250 86,075 Owned Aviation British Aviation Insurance Group (BAIG) 10,000,000 (45,000 Hull) XS $1K hull deductible 2,760 2,967 3,364 Non-Owned Aviation BAIG 10,000,000 Nil 3,200 3,200 3,700 Marine Hull & Machinery Subscription led by ACE INA 21,164,500 (18 vessels) XS $5K - $15K deductibles 88,944 88,020 88,020 Marine Protection & Indemnity Shipowners Mutual 2.25 Billion ($1B oil pollution claims) XS $1K - $5K deductibles 50,833 48,484 48,484 June 1, 2001 Insurance Policy Renewals Property Boiler & Machinery Royal & SunAlliance: 65% Commonwealth: 35% 7,568,684,025 Royal & SunAlliance: 100% 100,000,000 XS $100K deductible 606, , ,006 XS $100K deductible 97, , ,788 Total Premiums 4,019,829 4,031,650 4,180,484

7 7 Table 2 Premium Change at Renewal Insurance Policy Expiring Premium Renewal Premium Change Percent Primary Liability Comprehensive General Liability 1,860,000 1,860, Medical Malpractice Liability 110, , Automobile (owned and leased) 372, , Garage Auto Liability 22,453 22, RT Lands Liability 7,500 8, Subway Air Rights Liability 7,500 8, Home Day Care Liability 10,308 15,000 4, Umbrella and Excess Liability Primary Umbrella 220, , st Excess Umbrella 97,500 97, nd Excess Umbrella 40,000 40, rd Excess Umbrella 20,000 20, Public Officials Errors and Omissions Liability 295, , Crime 78,250 86,075 7, Owned Aviation 2,967 3, Non-Owned Aviation 3,200 3, Marine Hull and Machinery 88,020 88, Marine Protection and Indemnity 48,484 48, Property 643, , , Boiler and Machinery 104, ,788 5, Total 4,031,650 4,180, , (City Council at its regular meeting on April 23, 24, 25, 26, 27, and its special meeting held on April 30, May 1 and 2, 2001, had before it, during consideration of the foregoing Clause, the following report (April 11, 2001) from the Chief Financial Officer and Treasurer: Purpose: To advise Council whether or not the City has to pay provincial tax on property insurance. Financial Implications and Impact Statement: There are no financial implications related to this report.

8 8 Recommendations: It is recommended that this report be received as the information requested by Administration Committee following consideration of Item #12 entitled Insurance Program Renewal at its March 27, 2001 meeting. Background: At its March 27, 2001 meeting, recommended adoption of the March 8, 2001 report from the Chief Financial Officer and Treasurer entitled Insurance Program Renewal subject to the necessary funds being available in the 2001 Operating Budget. The requested the Chief Financial Officer and Treasurer to consult with the City Solicitor as to whether or not the City has to pay provincial tax on property insurance and submit a report directly to Council for its meeting scheduled to be held on April 24, 2001 Comments: Provincial sales tax is required to be paid on insurance premiums pursuant to the Retail Sales Tax Act Revised Statutes of Ontario, 1990, Chapter R.31 (the Act ). Subsection 2.1 (8) of the Act prescribes insurance contracts for which no tax is payable. This list of exemptions does not include contracts of insurance entered into by municipalities, other than contracts for marine insurance. Consequently, the City of Toronto must pay provincial sales tax on insurance premiums, other than marine insurance premiums. Staff have confirmed with the Shared Service Bureau (MBS) of the Province of Ontario as well as with the Province s insurance representatives that the Province must also pay provincial sales tax on its insurance premiums. It is the obligation of the insurance broker or agent to remit the required tax to the Province. The amount of provincial sales tax payable on insurance premiums is 8%. The only exception to this rate is for automobile premiums, which are currently at 3%. This rate is down from the 5% rate which was in effect at the time of the last renewal of the City s automobile policy. Subsection 2.1(6) of the Act lowers the rate for automobile premiums by one percent each year until April 2004 at which time no sales tax is payable on such premiums. Conclusions: The City of Toronto must pay provincial sales tax on insurance premiums except for marine insurance premiums. The Province of Ontario must also pay provincial sales tax on its insurance premiums. This report has been prepared in consultation with the City Solicitor.

9 9 Contact: Len Brittain, Director, Treasury & Financial Services Tel ; Fax Jeff Madeley, Manager, Insurance & Risk Management Tel ; Fax