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TO: |
Mayor and Members of Council |
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FROM: |
Andy Taylor, Commissioner,
Corporate Services |
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PREPARED BY: |
Barb Cribbett, Treasurer Joel Lustig, Director, Financial
and Client Services |
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DATE OF MEETING: |
2003 – Sep - 8 |
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SUBJECT: |
General Insurance and Risk
Management Program – Extension of Contract for one year |
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RECOMMENDATION:
THAT the report titled “General Insurance and Risk Management Program – Extension of Contract
for one year” dated September 8, 2003 be received;
AND THAT the contract to provide
General Insurance and Risk Management Program by Frank Cowan Company Limited be
extended for an additional year for the period January 1, 2004 to December 31,
2004, for a total cost not to exceed $866,200 inclusive of all taxes (2003 cost
- $765,000);
AND THAT funding in the amount of $866,200 be provided from within the 2004 Corporate Items Proposed Operating Budget;
AND FURTHER THAT the Director of Financial and Client Services
be authorized to extend the contract for General Insurance and Risk Management
Program for a further two years provided that the premium increase does not
exceed 10% of the previous years’ insurance program.
PURPOSE:
The purpose of this report is to approve the extension
of the contract for one year to provide General
Insurance and Risk Management Program to Frank
Cowan Company Limited.
BACKGROUND:
The contract for General Insurance and Risk
Management Program was awarded to Frank Cowan Company Limited in June 2001 for
the period July 1, 2001 to December 31, 2003.
Included in the proposal from Cowan was a Rate Stabilization Agreement
that stated the premiums would not exceed 2001 levels subject to the following:
However, over the past few years
the insurance industry has been going through a period of uncertainty. The environment within the public sector and
more significantly the events of September 11, 2001 have caused heavy losses
for insurers. The economic
uncertainties being experienced on a global basis, the erosion of investment
portfolios maintained by insurance companies as well as the reduction of
investment income received has resulted in insurers and re-insurers requiring
more premium income to meet their financial solvency requirements. This has created “hard market” conditions
within the industry.
Further, the public sector has
experienced significant losses in the past few years. Some of these have been driven by landmark cases and the
frequency / severity of the claims has increased considerably. The overall cost of claims, which takes into
account escalating court awards, claims administrative expenses and the
increasing replacement cost of assets continued to rise during this period at a
rate in excess of the premium growth.
In addition, insurers and re-insurers are cautious about public entity
liabilities because of the continuous downloading of services provided by the
provincial government, namely roads and ambulance services. Insurers are experiencing the impact of the
claims from these downloaded services and its impact on the public entity
portfolio.
The impact of these factors to the
Town of Markham’s insurance costs has been significant. Insurance costs in 2003
increased by 28% compared to 2002, and 33% in 2002 compared to 2001. Further, other municipalities who have
renewed their insurance during 2003 have experienced similar increases in their
premium costs. The Region of York for
example had an increase of 50% on traditional coverages (Property, Crime,
Marine, Group Accident and Boiler) and an increase of approximately 30%
increase in Liability, Automobile and Errors & Omissions coverage obtained
through Ontario Municipal Insurance Exchange (OMEX). Brampton had an overall increase in premiums of 26% upon renewal.
OPTIONS/DISCUSSION:
As a result of the current “hard
market” conditions, a number of insurers have withdrawn from the public entity
marketplace or have had coverage limitations imposed upon them by their markets
that do not allow them in some cases to effectively address the needs of public
entity clients.
Based on discussions with various
insurers, staff anticipates that only a few companies would be able to submit
acceptable bids in the event of an RFP.
These companies include Ontario Municipal Insurance Exchange (OMEX) and
Frank Cowan Company Limited. OMEX is a reciprocal which is a large and
homogenous group of organizations (i.e. municipalities) that work together to
form an insurance co-operative. A
reciprocal is not a private enterprise and is not a conventional
insurance. In essence, becoming a
member of the reciprocal means the Town would agree to assume a certain percentage
of the entire membership group’s liabilities and losses for the duration of the
membership. The membership in OMEX
continues to grow and includes five municipalities and the Region of York among
others.
Frank Cowan Company Limited have
offered the 2004 renewal premium for existing coverages at a price that would
not exceed 8% ($61,200) over the 2003 premium levels. Frank Cowan Company Limited have further indicated the increase
will hopefully be limited to approximately 5% ($38,250) due to the Town’s
favourable loss history together with our long term relationship. The 8% increase has been recommended for
budgetary purposes.
Further, any new construction
projects and the acquisition of other assets such as licensed vehicles will
have to be budgeted for in 2004. For example, Thornhill Community Centre
expansion, Angus Glen Community Centre and Riviera Fire Station along with the
acquisition of new vehicles will increase premium costs by approximately
$40,000.
As stated above, the current “hard
market” conditions has limited the number of insurers in the market place and
as such would limit the number of companies that would most likely respond to
an RFP. Even though re-insurance
contracts for 2004 have not been finalized, Frank Cowan Company Limited have
offered the Town of Markham a 2004 premium with a maximum increase of 8% over
2003 costs. This increase is substantially lower than the increases observed in
2003 and 2002.
Frank Cowan Company Limited has
been the insurance provider for the Town since regional government was formed
in the early 1970’s and prior to that when Markham was a Township and
Village. Staff are confident that Frank
Cowan Company Limited will continue to provide satisfactory services to the
Town. It is therefore recommended that
the Town of Markham extend the current contract with Frank Cowan Company
Limited for the General Insurance and Risk Management Program for the period up
to December 31, 2004.
FINANCIAL CONSIDERATIONS:
2004
Proposed Budget
8%
Maximum Premium Increase $ 61,200
$826,200
New
Facilities and additional vehicles in 2004 (approx.) $ 40,000
There
will be an increase of $101,200 for the insurance program in 2004 when compared
to the 2003 program.
Based
on market conditions prevailing at the time, it is recommended that the
Director of Financial and Client Services be authorized to extend the contract
for General Insurance and Risk Management Program for a further two year period
to an upset limit of 10% of the base premium amount. However, costs associated with new construction projects and other
assets such as licensed vehicles acquired during the year will be added to the
base costs.
ENGAGE 21ST CONSIDERATIONS:
The Town continues to explore opportunities to
minimize costs of providing services without compromising on efficiency. The proposal to extend the contract for
General Insurance and Risk Management Program for one year at a minimal
increase in premium costs, especially under current market conditions, provides
credence to the Town’s commitment to fiscal stewardship.
BUSINESS UNITS CONSULTED AND AFFECTED:
No
other business units were consulted or are affected by this report.
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Joel Lustig, Director Financial and Client
Services |
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Andy Taylor, Commissioner, Corporate Services |
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Barb Cribbett, Treasurer |
Q:\2003FinAdminCtteeReports\0367 General
Insurance Risk Management Program.doc
