INSURANCE RENEWAL PROCESS

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INSURANCE RENEWAL PROCESS
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Objectives

• Overview of insurance program.
• Insurance issues.
• Insurance marketplace.
• Council direction on insurance renewal process.

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Background
As the largest municipality in Northern Ontario
serving a population of 155,000 the City has
assets and provides services usual to a
community-minded municipality, including, but not
limited to

• Tom Davies Square
• Pioneer Manor
• Sudbury Airport
• Water, Wastewater and other Public Works
  operations
• Ontario Works
• Economic Development partnerships
• Transit Services

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Background

• Sports facilities, Citizen Leisure Service
  Centres
• Police, Fire and Emergency Medical Services
• Greater Sudbury Metro Board
• Greater Sudbury Community Development Corporation
• Greater Sudbury Housing Corporation
• Leased and owned buildings, furnishings, computer
  and other equipment with values in excess of
  660,000,000

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Background

• Construction and maintenance of streets and
  sidewalks
• Water and wastewater treatment and distribution
• Solid waste disposal
• Construction, operation and maintenance of
  recreation facilities
• Recreation and leisure programming
• Long-term care facility
• Public housing
• Building plans examination and inspection

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Insurance Program
The City has various insurance coverages Core
municipal coverage

• Municipal General Liability
• Errors Omissions Liability
• Health Care Professional Liability
• Non-Owned Automobile

• Legal Expense Reimbursement
• Excess Liability
• Umbrella Liability
• Conflict of Interest
• Automobile
• Garage Automobile

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Insurance Program

• Environmental Liability
• Property Insurance
• Boiler Machinery
• Crime Insurance
• Councilors Accident
• Firefighters Accident
• Additional coverage
• Aviation Liability

• Aviation Excess Liability
• Airport Environmental Liability
• Workers Compensation Stop-Loss
• Ontario Works Program
• Community Affiliates
• User Groups

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Insurance Market

• Insurance industry has gone through some very
  difficult times of late.
• Poor underwriting practices, tremendous loss of
  equity in world stock markets and catastrophic
  losses in Europe and the USA.
• Over the last 24 months the insurance capacity
  (or the ability to write insurance business) has
  shrunk.

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Insurance Market

• The number of companies willing to write
  municipal insurance has been reduced.
• Insurance companies have changed their business
  practices and have become more risk averse and
  more diligent when they write insurance.
• Many insurers no longer provide coverage for
  certain risks, or now limit their coverage.

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Insurance Market

• Some providers are not pursuing municipal
  accounts.
• Some programs have been restricted in terms of
  coverage.
• Some programs are geared to smaller rural
  municipal accounts.
• Some programs cannot provide a competitive
  product (current market share of Ontario
  Municipal accounts is very small).
• Some programs are having difficulty maintaining
  consistent insurance carriers.

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Reciprocal Insurance

• A reciprocal is not a conventional insurer but
  rather a reciprocal insurance exchange.
• A reciprocal is a group of municipalities that
  have come together to spread their risks and
  losses by charging an amount against each member
  to cover losses that occur in the group.

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Reciprocal Insurance

• The decision to join a reciprocal should not be
  viewed as an insurance alternative or solution.
• It is a major philosophical change.
• Joining a reciprocal insurance should be a
  conscious long-term commitment.

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Reciprocal Insurance

• As a member of a reciprocal, you assume a certain
  percentage of the entire groups liabilities and
  losses for the period of time that you were a
  member.
• Reciprocal has the ability to re-assess each
  member for excess claim losses.
• On the other hand, surpluses may be divided
  amongst members.

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Reciprocal Insurance

• A reciprocal in theory has a major advantage over
  conventional insurance if two conditions hold
  true1) Insurance premiums are either too
  expensive or it is difficult to find proper
  insurance coverage. 2) There is a large
  homogeneous group of municipalities with similar
  exposures.

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Reciprocal Insurance

• A reciprocal would self insure the first million
  dollars and re-insure limits in excess through
  the conventional insurance marketplace.
• With all the problems currently in the insurance
  industry, a reciprocal faces many of the same
  problems that conventional insurers do.

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Reciprocal Insurance

• Upon joining a reciprocal there are obligations
  to report claims in a manner that will protect
  the interest of all other members.
• The member authorizes the work of adjusters,
  outside consultants, makes payments, and assists
  with the negotiation of settlements.
• Members must submit all claim liabilities and
  financial reports to the reciprocal members and
  track claims activity and reserves for
  anticipated payments on a quarterly basis.

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Reciprocal Insurance

• Much of this work can be undertaken by a duly
  appointed adjuster who is given proper authority
  and a trust account to handle claims and
  reporting which would increase adjusting cost
  significantly.
• The alternative is handle claims in-house which
  would require significant additional staff
  resources.
• Reciprocal members would have substantial staff
  resources. Greater Sudbury has only one
  individual dedicated to insurance and risk
  management.

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Renewal Process

• Changes in insurance practices dictate changes in
  our business practices.
• In 2000, the Transition Board insurance program
  tender process linked the broker and insurer
  together.
• To guarantee a competitive insurance program that
  meets our requirements the broker should be
  separated from the insurer.

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Renewal Process

• This practice will ensure that the broker will be
  acting in our best interests and will be
  providing independent advice.
• Best to receive advice from a broker before the
  insurance program tendering process.
• Best practice would dictate that requests for
  proposal for the insurer and for the broker not
  be concurrent.

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Renewal Process

• Claims adjustment is critical to properly
  managing our insurance costs.
• The claims adjuster must act on our behalf and in
  our best interests.
• Best practice would dictate that requests for
  proposals for claims adjustment be issued
  concurrent with that for the broker to ensure
  impartiality of both the broker and the adjuster.

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Renewal Process

• These two service providers will have an
  excellent opportunity to acquaint themselves with
  and become knowledgeable about the insurance
  risks and insurance requirements of the City.
• By extension then, they will be able to provide
  excellent advice to ensure a suitable selection
  of and smooth transition to another insurer if so
  awarded.

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Renewal Options

• Option 1 Best PreferredExtend the present
  broker services agreement for a two-year period
  ending December 31, 2005. Extend the present
  claims adjustment services agreement for a
  one-year period ending December 31, 2004.Extend
  the present insurance program for a one-year term
  to January 1, 2005.

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Renewal Options

• Reasons why
• By extending the insurance program for another
  year, the insurance industry will have the
  opportunity to regroup and insurance costs may
  settle.Future renewals (by tender) can be set
  for staggered terms so that tenders are not
  issued concurrently and not in an election year.

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Renewal Options

• Reasons why (continued)
• Broker services are not linked to a particular
  insurance company but rather the broker
  consultant becomes a key resource to the City
  acting in our best interests.Council has the
  opportunity to renew the insurance program and
  the agreements for broker services and claims
  adjustment before lame duck provisions take
  effect.

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Renewal Options

• Option 2
• Next Best Preferred Issue a Request for
  Proposal for broker services for a two-year
  period to December 31, 2005.
• Extend the present insurance program for a
  one-year term to January 1, 2005.
• Extend the present claims adjustment services
  agreement for a one-year period ending December
  31, 2004.

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Renewal Options

• Reasons whyBy extending the insurance program
  for another year, the insurance industry will
  have the opportunity to regroup and insurance
  costs may settle.Future renewals can be set
  for staggered terms so that tenders are not
  issued concurrently and not in an election year.

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Renewal Options
Reasons why (continued)

• Broker services are not linked to a particular
  insurance company but rather the broker
  consultant becomes a key resource to the City
  acting in our best interests.This would mean
  that the new Council would, at its first
  sitting in December 2003, have to decide and
  award the broker consultant.

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Renewal Options

• Option 3 Not preferredIssue a Request for
  Proposal for the insurance program for a one-year
  term to January 1, 2005.Extend the present
  broker services agreement for a one-year period
  ending December 31, 2004. Extend the present
  claims adjustment services agreement for a
  two-year period ending December 31, 2005.

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Renewal Options

• Reasons why not recommendedIn the current
  hard market competition for municipal insurance
  business has lessened which will limit the number
  of submissions.Broker resources would not be
  available to assist with the evaluation of
  insurance program submissions.

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Renewal Options

• Reasons why not (continued)Renewals for both
  the insurance program and broker services next
  year would occur concurrently.The insurance
  industry does not quote renewals much more than
  60 days before policy expiration dates. This
  would mean that the new Council would, at its
  first sitting in December 2003, have to decide
  the insurance program.

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Renewal Options

• Option 4 Least Preferred Issue a Request for
  Proposal for the insurance program for a one-year
  term ending January 1, 2005.Issue a Request for
  Proposal for broker services for a three-year
  period ending December 31, 2006.
• Issue a Request for Proposal for claims
  adjustment services for a two-year period ending
  December 31, 2005.

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Renewal Options

• Reasons why not recommendedIn the current
  hard market competition for municipal insurance
  business has lessened which will limit the number
  of submissions.Broker resources would not be
  available to assist with the evaluation of
  insurance program submissions.

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Renewal Options

• Reasons why not (continued)This would mean
  that the new Council would, at its first
  sitting in December 2003, have to decide the
  insurance program, the broker consultant and the
  claims adjuster.

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Insurance Renewal ProcessCouncil Resolution

• THAT the Treasurer be authorized to negotiate
  with Canada BrokerLink for the broker services
  agreement to be extended for a two-year period
  ending December 31, 2005 and
• THAT the Treasurer be authorized to negotiate
  with SCS Insurance Adjusters Ltd. for the claims
  adjustment agreement to be extended for a one
  year period ending December 31, 2004 and
• THAT the insurance coverage presently provided
  by Frank Cowan Company Limited be renewed for a
  further one-year term to January 1, 2005.