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REGIONAL MUNICIPALITY OF OTTAWA CARLETON
MEMORANDUM
MUNICIPALITÉ RÉGIONALE D’OTTAWA CARLETON
NOTE DE SERVICE
Our File/N/Réf. 08-96-0002 Your File/V/Réf.
DATE 29 November 1996
TO/DEST. The Chair and Members of Regional Council FROM/EXP. Finance Commissioner
SUBJECT/OBJET 1997 INSURANCE RENEWAL
BACKGROUND
In accordance with authority delegated to the Finance Commissioner under section 4.3.6 of the Corporate Policy Manual, the Finance Department, through the Region’s Insurance Advisory Committee (IAC) composed of members of the Ottawa Insurance Brokers Association, undertook a formal review of the insurance market by requesting quotations on the Region’s 1997 insurance program renewal. Since 1969 the Region has received advice from the IAC on insurance matters. The members of the IAC continually provide access to a broad range of advice for insurance markets and risk management practices. The region establishes the insurance specifications applicable to its program and utilizes the IAC to access the insurance market and review quotes. The last comprehensive market review was conducted in the Fall of 1992 for our 1993 renewal.
DISCUSSION
Insurance coverage specifications were based on our existing program and provided insurers the option to quote with increased deductibles. These specifications were sent to more than twenty insurers. A summary of the responses is attached in Annex A. The summary shows that there is still limited interest in insuring large municipal risks as many insurers did not provide quotes. The only complete quote received was from our current insurance carrier, the Frank Cowan Company Limited, for a cost of $898,494 including taxes and is offered on an “all or none” basis.
INFORMATION PREVIOUSLY DISTRIBUTED TO BE LISTED ON CORPORATE
SERVICES AND ECONOMIC DEVELOPMENT COMMITTEE AGENDA - 04 Feb 97
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By comparison, the best alternative for comparable coverage by selecting the least costly quotations for each type of cover from those insurance companies who provided a quote would cost $1,027,981. This combination of insurance cover would not only be 14.4% higher than Cowan’s, but would also result in the following loss of coverage and increased deductibles:
• no conflict of interest legal expense coverage
• increase the deductible on fine art from $250 to $50,000.
• increase the deductible on liability claims from $50,000 to $100,000
• increase the deductible on sewer back-up from $10,000 to $50,000 each claimant
Consideration was also given to seeking a quote from the Ontario Municipal Insurance Exchange (OMEX), an insurance reciprocal for Ontario municipalities. Through a reciprocal, members agree to assume the risk of loss amongst all the participants. An initial premium payment is made but is subject to reassessment depending upon actual loss experience. Recently Metro Toronto (the largest participant of the eight OMEX members) has decided to withdraw from this reciprocal, since it was not cost-effective for them, and return to the traditional insurance market. This has created uncertainty over the stability of OMEX and therefore it was not considered a viable option at this time.
CONCLUSION
As the Cowan quote is significantly less costly and offers broader coverage than any of the other responses, the Region’s insurance program has been renewed with the Frank Cowan Company for 1997. The Frank Cowan Company has been providing general insurance requirements for Ontario public entities, including most municipalities, since 1932 and we have enjoyed a good working relationship with them since 1986.
Without increasing our current self-insured retention (SIR) deductibles, the 1997 total premium cost is approximately 5.1% higher than 1996 and compares favourably with premium increases of between 8% and 20% experienced in other municipalities due to the overall rise in premiums, particularly in the area of liability insurance, throughout the insurance industry. Although a savings in premiums of $61,587 could be realised by increasing our deductibles to $100,000 instead of $50,000 on our liability coverages, analysis of the Region’s claims experience,
excluding police claims, indicates that moving to the higher deductible would result in the
Region’s self-insurance costs increasing about $69,000 per year, thus resulting in no real savings. Factoring in the recent reinstatement of the right to sue under the Automobile Insurance Rate Stability Act, potential police claim costs and administrative costs associated with increased claim handling requirements at the higher deductible, do not make moving to a $100,000 deductible on liability coverage an attractive option. However, doubling our $50,000 deductible on our property insurance coverages would result in a premium savings of $53,410 as compared to projected property damage loss increases of only about $30,000 at the higher retention level. We have therefore increased our deductible to $100,000 on our property coverages which will lower the 1997 insurance renewal premium to $845,084 including taxes, 1.1% lower than 1996 premium costs.
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Renewal of insurance coverage ensures that an appropriate risk financing mechanism is in place to protect the Region’s exposure to catastrophic losses.
A summary of the Region’s insurance coverages is attached as Annex B and a cost comparison summary by line of cover is attached as Annex C.
PUBLIC CONSULTATION
Public consultation is not required on this administrative matter. FINANCIAL COMMENT
Funds are available in the 1997 Insurance Budget to cover the cost of premium renewals and premium adjustments that may be required due the acquisition of new buildings and vehicles during 1997.
Approved by J. C. LeBelle
ANNEX A SUMMARY OF INSURANCE MARKET REVIEW RE 1997 INSURANCE RENEWAL
Insurance Premium Quotes For Companies Quoting On More Than One Policy Type (including Provincial Sales Taxes)
1 2 3 4 5 6 Policy Type Frank Cowan Company Royal Insurance Liberty International Sovereign General London Guarantee Best Alternative (to Cowan’s) Primary Liability 248,320 388,638 326,160 378,000 NQ 388,638 Excess Liability 79,752 81,000 NQ 313,200 NQ 81,000
Error & Omissions 14,202 NQ 90,720 NQ 102,400 90,720
Property 283,757 256,629 NQ NQ NQ 219,933
Electronic Data Proc. 28,922 4,329 NQ NQ NQ Included above
Boiler & Machinery 18,682 20,562 NQ NQ NQ 16,738
Automobile 204,276 NQ 198,450 NQ NQ 204,276
Crime 16,226 14,040 NQ NQ 25,326 25,326
Legal Expense 2,484 NQ NQ NQ NQ N/A
Travel 1,657 NQ NQ NQ NQ 810
Registered Mail 216 NQ NQ NQ 540 540
Total 898,494 765,198 615,330 691,200 128,266 1,027,981 Notes:
1. - Only complete insurance package quotation received, based on $50,000 SIR* / $10,000 per claim on sewer back-ups.
2. - Did not provide complete quote by deadline and quote provided based on $100,000 SIR / $50,000 per sewer back-up.
3. - Quotation based on $2 million limit instead of $5 million, and with $100,00 SIR on police claims. 4. - Premium indication based on $2 million limit and Excess of only $8 million.
5. - Interested in just a few of the smaller policies.
6. - Liberty quote on Liability insurance not used in "best" alternative since limit is only $2 million and the only Excess
quote at this limit is $313,200 for a combined higher liability cost. Alternative SIR is double that of Cowan quote.
Companies Providing Single Policy Quotations Only Marine Office Allianz Gerling Global Kemper Commonwealth Protection Mutual American Home
Quote of $20,844 on Boiler & Machinery (B&M), not low B&M bid. Best full Property insurance quote of $219,933.
Lowest Boiler & Machinery quote of $16,738.
Interested in Property only with a cost indication of 4% or about $345,600. Same indication as Kemper.
Quote indication of $162,000 but based on $500,000 SIR* and limit of only $160 million vs. 787 million. Only quoted on Travel Accident policy; $810 premium is best and only alternative to Cowan's.
ANNEX B INSURANCE SUMMARY
PROPERTY COVERAGE
A. ALL RISK BUILDING/CONTENTS - REPLACEMENT VALUE (INCLUDING EARTHQUAKE AND FLOOD)
Premium: $240,889
Insurer: Subscription
Deductible: $100,000, $500,000 flood and earthquake, $250 Fine Arts
Limits: Property of every description 787,064,800
Valuable Papers 250,000
Accounts Receivable 250,000
Extra Expense (any one location) 1,000,000
Professional Fees 100,000
Rent or Rental Value 250,000
Additional Rental Expense 100,000
B. BOILER AND MACHINERY
Premium: $13,090
Insurer: The Boiler Inspection & Insurance Company of Canada Deductible: $100,000
Limits: Per Accident 25,000,000
Water Damage 100,000
Hazardous Substances 100,000
Extra Expense 250,000
Ammonia Contamination 100,000
Professional Fees 100,000
Spoilage (Broad Form) 50,000
Data and Media 10,000
C. ALL RISK ELECTRONIC DATA PROCESSING EQUIPMENT
Premium: $23,972
Insurer: Commercial Union Assurance Deductible: $100,000
Limits: Replacement Value - Blanket Amount 13,361,474
Media including Transit 5,541,764
Extra Expense 7,500,000
Business Interruption 1,000,000
ANNEX B
D. TRAVEL ACCIDENT
Premium: $1,657
Insurer: General Accident Assurance Company Deductible: $0
Limits: Annual aggregate 1,000,000
CRIME
COMPREHENSIVE DISHONESTY, DESTRUCTION AND DISAPPEARANCE
Premium: $16.226
Insurer: General Accident Assurance Company and Guarantee Company of North America Deductible: $250 on Broad Porm Money & Securities
Limits: Employee Dishonesty 10,000,000
Money Orders & Counterfeit Paper Currency 200,000
Depositors Forgery 200,000
Broad Form Money & Securities 100,000 MUNICIPAL CONFLICT OF INEREST
LEGAL DEFENCE COST COVERAGE
Premium: $2,484
Insurer: Guarantee Company of North America Deductible: 10% of each claim
ANNEX B
D. REGISTERED MAIL
Premium: $216
Insurer: Guarantee Company of North America Deductible: $0
Limits: 5,000,000
LIABILITY COVERAGE
A. MUNICIPAL LLABILITY INCLUDING ERRORS AND OMISSIONS
Premium: $262,522
Insurer: General Accident Assurance Company Deductible: $50,000
Limits: 5,000,000
B. AUTOMOBILE FLEET INCLUDING NON-OWNED AUTO
Premium: $204.276
Insurer: General Accident Assurance Company
Deductible: $50,000, $25,000 Comprehensive,$500 Non-Owned Collision
Limits: Third Party Liability 5,000,000
Non-Owned Collision and Comprehensive 250,000 C. EXCESS LLABILITY INSURANCE
Premium: $79,752
Insurer: Guarantee Company of North America and General Accident Assurance Company Deductible: $0
Limits: Excess over Municipal Liability, Errors & Omissions,
ANNEX C
COST COMPARISON SUMARY (Including Provincial Sales Tax)
Current Deductibles New Deductibles
($50,000 all lines) ($100,000 on Property line§$50,000 Liability) 1996 1997 % 1997 %
Policy Premium Premium Change Premium Change Property Coverage
All Risk Property 282,398 283,757 0.5 240,889 -14.7 Electronic Data Processing 27,545 28,922 5 23,972 -13 Boiler and Machinery 18,682 18,682 0 13,090 -29.9
Registered Mail 108 216 100 216 100
Liabilitv Coverage
Municipal Liability (incl. E&O) 242,325 262,522 8.3 262,522 8.3
Automobile Fleet 191,470 204,276 6.7 204,276 6.7
Excess Liability 73,121 79,752 9.1 79,752 9.1
Crime 14,791 16,226 9.7 16,226 9.7
Conflict of Interest 2,484 2,484 0 2,484 0
Travel Accident 1,611 1,657 2.9 1,657 2.9
