Report to: General Committee Report
Date:
SUBJECT: 2010 General Insurance and Risk Management Program
PREPARED BY: Joel Lustig, Director of Financial and Client Services
Fred Rich, Senior Business & Risk Analyst
RECOMMENDATION:
- That the report dated
2.
That
the 2010 General Insurance Program commencing January 1, 2010 to December 31,
2010 be awarded to Jardine Lloyd Thompson (“JLT”) the highest ranked and lowest
priced proponent in the amount of $1,040,613 inclusive of PST where applicable ($973,958
exclusive of PST), provided JLT enters into a contract with the Town in a form
acceptable to the Treasurer and the Town Solicitor (“Contract”);
3.
That the Mayor and Clerk be authorized to execute
the Contract on behalf of the Town, in a form acceptable to the Treasurer and
the Town Solicitor;
4.
That
Staff obtain a premium quote for the heritage replacement cost on Town heritage
buildings and implement coverage after obtaining independent professional
appraisals on all heritage properties and/or historic buildings;
5.
That
the Town’s insurance liability deductible be increased from $50,000 to $100,000
and be funded from the existing 2010 insurance budget;
- That the net savings (currently $654,910) related to the difference between 2010 insurance budget ($1,745,523) and the RFP award ($1,040,613) be transferred to the Insurance Reserve, account number 086 2700 300;
7. That Staff retain the services of
- That the Treasurer be authorized to extend the contract for General Insurance and Risk Management Program for the period January 1, 2011 to June 30, 2011 at 50% of the 2010 expiring premium;
- That the Treasurer be authorized to extend the contract for General Insurance and Risk Management Program for three (3) additional one year periods, provided that it is in the best interest of the Town and the premium increase per year does not exceed 5% of the cost of the previous years' insurance program, exclusive of annual coverage changes;
- And Further That Staff be authorized and directed to do all things necessary to give effect to this resolution.
In
October 2006 Council approved a one year contract with Frank
Cowan Company Limited (Cowan) for the 2007 General Insurance and Risk
Management Program, with an option to extend the contract for a further two (2)
years, 2008 and 2009. With
no extensions remaining after extending coverage with Cowan for 2008 and 2009,
Staff issued an RFP with the assistance of
Fifteen
companies obtained the proposal and four companies submitted responses; Cowan,
Jardine Lloyd Thompson (JLT), BFL
The
four proposals received ranged in price from $908,806 to $1,929,250 (exclusive
of PST) with JLT’s price being the lowest overall.
JLT
has been providing public entity insurance in
The
following section discusses the major coverage differences identified by
RiskPro and the corresponding mitigating strategies:
Aggregate
vs. Per Occurrence Liability Limits:
JLT’s
program contains annual aggregate limits for Products and Completed Operations
under the General Liability policy; as well as a general aggregate limit under
the Errors and Omissions policy. Annual
aggregates limit the amount a policy will pay out during the annual term, verses
per occurrence coverage that does not limit coverage annually. Cowan does not
have aggregate limits and to this end, Staff has attempted to mitigate this
difference by: (1) having the insurer
define what type of claims will be considered a Products and Completed
Operation in advance of any liability claims; and (2) increase the liability
limit to $50 million from the current $20 million, thus increasing the
aggregate limit available for these policies.
With
respect to the aggregate limits for Products and Completed Operations, JLT and
its insurer have confirmed that only non-traditional municipal operations
completed for third parties in terms of products or services provided off
premises would fall under this category of claims and erode the aggregate. Some examples provided include: signs
produced by the municipality and sold to others and garage operations performed
on others’ vehicles whereby revenue was generated. The Town does not currently perform any non-traditional
municipal operations and therefore Staff are satisfied no exposures exist in
this area.
Examples
of traditional municipal operations that the Town performs for third parties
that would not be included under this aggregate limit include: building
inspections, road maintenance, snow removal, garbage collection, tree
maintenance, or any other statutory duty that the Town has to perform services
for or on behalf of third parties.
Staff
have received confirmation from JLT that the aggregate limits do not include
the traditional municipal operation examples described above. Staff will ensure
the contract between JLT and the Town includes the same clarification. In
addition, Staff contacted the Town’s insurance adjuster at Cunningham Lindsey,
who has been handling the Town’s account since 1997 and to the best of his
recollection the Town has not had a claim in any of these traditional or
non-traditional areas since 1997.
In
respect to Errors and Omissions Coverage, Cowan advised that the maximum paid
out under the Errors and Omissions policy, in a single claim, was $8 million
for one municipality. Accordingly, Staff
are satisfied that the liability limits of $50 million would reasonably satisfy
the Town’s exposure in this area.
Property
Limitations
JLT
property policy has limits with respect to Building By-laws, Inflation
Protection, Temporary Locations, Installation Floater, Exterior Glass and
Signs. These limitations could
negatively impact the economic position of the Town in the event of a loss. Staff
contacted Cunningham Lindsey regarding the above limits and to the best of their
recollection the Town has not had a claim in any of these areas since 1997. In
Staff’s opinion these limitations are financially immaterial to the Town.
Incidental
Malpractice – Claims made vs. Occurrence Based Coverage
Incidental
Malpractice is when a person or organization not in the medical profession performs
medical services (first aid) on another individual. Cowan’s Liability policy includes Incidental
Malpractice insurance at the full policy limits on an occurrence basis. JLT’s
Liability policy, however, includes only Incidental Malpractice coverage to the
full policy limits on a claims-made basis.
This
means that in the event of a claim, under the Cowan program, the policy that
was in place at the time the incident happened would respond. While the JLT
program will only insure claims that are reported during the current policy
period, providing that the incident occurred after the first policy renewal on
this basis. In the event that the Town
decided to go back to a program where this coverage is provided on an occurrence
basis, the Town would need to purchase additional “tail” coverage to pick up
claims that occurred during the period of time when the claims-made policy was
in place. Staff and RiskPro are
satisfied the purchase of tail coverage mitigates this difference in policies.
Councillor
Accident
JLT quoted Councillors’ Accident coverage at $100,000 for Principal Sum on-duty only. Currently the Town has $70,000 for Principal Sum on a 24-hour basis. In order to eliminate this issue and to further enhance this coverage, Staff recommend purchasing the $200,000 Principal Sum on a 24-hour basis at an additional cost of $1,443 (plus PST) and have included it in the JLT premium price submission.
Heritage
Buildings
The
Property insurance coverage offered by JLT requires the Town to obtain
independent professional appraisals for all of its heritage properties or
historic buildings. Without these, in
the event of a serious or total loss, these building would be replaced with
current building construction materials and not restored to their original
construction. The Cowan policy includes heritage replacement cost coverage. Staff will obtain independent professional
appraisals for all of its heritage properties or historic buildings and will
then obtain a quote for the heritage replacement cost and will implement
coverage.
Crime
Coverage
The JLT crime policy coverage was quoted with a $200,000 limit under the Crime insurance for Money Orders & Counterfeit Paper Currency, whereas the Town currently has coverage included in the $10 million bond limit. However, JLT provided Staff with a quote to include the Money Orders & Counterfeit Paper Currency coverage within the $10 million bond limit for an additional premium cost of $2,875 (plus PST). This coverage was added to the JLT proposal.
Based
on the pricing received in the proposals, Staff recommend increasing the Town’s
liability deductible to $100,000 from $50,000 as the premium savings quoted for
the $100,000 deductible option exceeds the estimated annual claims costs to the
Town.
With an overall RFP score of 74 points, Staff recommend awarding the General Insurance and Risk Management Program to Jardine Lloyd Thompson as follows:
- Extend the contract for three (3) additional one year periods, provided that it is the best interests of the Town and the premium increase per year does not exceed 5% of the cost of the previous years' insurance program, exclusive of annual coverage changes.
PURPOSE:
The purpose of this report is to award the 2010 General Insurance and Risk Management Program, 303-R-09.
BACKGROUND
The
Frank Cowan Company Limited (Cowan) has been the insurance provider for the
Town for over 40 years. In October 2006
Council approved a one year contract extension with Cowan for
the 2007 General Insurance and Risk Management Program. In addition, Council authorized the Director
of Financial and Client Services to extend the contract for a further two
years, 2008 and 2009, provided that the premium increase per year did not
exceed 5% of the cost of the previous years’ insurance program, exclusive of annual coverage changes. The 2008 and 2009
insurance programs were with Cowan and the Town received premium reductions
each year, when compared to the expiring premium.
With no extensions remaining, Town staff
hired
1.
Analyze the current municipal insurance market
and the Town’s current insurance program;
2.
Assist in preparing the insurance Request For
Proposal issued by the Town;
3.
Evaluate the RFP responses
A
Request for Proposal (RFP) 303-R-09 was issued in accordance with the
Purchasing By-Law 2004 – 341.
The
RFP restricted proposals to “traditional” insurance providers only and as a
result, this restriction excluded OMEX, the
The
proposal was advertised electronically on Biddingo and closed on
An
Evaluation Committee represented by staff members from Clerks, Legal, and
Finance departments, along with RiskPro evaluated the responses to the RFP. The
process was facilitated by Purchasing Staff.
The
RFP was based on the Town’s current policy coverage, limits and deductible
levels, however, proponents were given the opportunity to deviate in these
areas.
The
Town’s current liability deductible is $50,000, however, all proponents
provided a $100,000 liability deductible option. The Town’s 10 year claims history indicates
that the average, annual cost of increasing the liability deductible to
$100,000 would be approximately $50,000 annually. Since the premium savings as submitted by the
proponents for the $100,000 liability deductible option range from $69,000-$173,000
and, therefore, exceed the estimated increase in annual claims costs to the
Town ($50,000), Staff recommend moving to the $100,000 liability deductible
option. As a result, this report will be
based on the proponents’ pricing with a liability deductible of $100,000.
The
annual premium costs, based on a $100,000 liability deductible, for each of the
proponents ranged from $908,806 to $1,929,250 (exclusive of PST).
The
proposals were scored on six criteria with corresponding weighting. As
identified in the chart below, Committee members evaluated the Risk Management
Services, Claims Management Services, Qualifications criteria, with
A
comprehensive review of the proposals was completed by the Evaluation Committee
and based on the committee’s initial review JLT and Cowan were afforded
in-person interviews. Cowan was afforded an interview as their preliminary score
was the highest at the $50,000 deductible level. JLT was provided an interview
as they submitted a $100,000 deductible proposal with a premium 41% lower than
Cowan’s $50,000 deductible premium. The proponents were sent questionnaires
prior to the interviews, so that responses could be provided at the interview. At the interviews the proponents presented
further details in addition to clarifying the proposals.
Staff
conducted four reference checks of current and past JLT municipal clients. All
municipalities contacted provided positive references on JLT’s overall risk
management and claims management services.
As well, all current clients indicated that the transition to JLT from
their incumbent was smooth and without incident. In addition, those municipalities that have
been with JLT of a number of years have not experienced any significant price
increases.
The
results of the scores and final weighted ranking of the proponents are as
follows:
Insurance
Proposal Evaluation and Summary Rating
* The above
scores reflect the proponent’s submission, interviews, and reference checks. In
Addition JLT’s score was adjusted to include liability coverage at $50 million
for the General Liability, Errors & Omissions, Non-Owned Automobile, and
Automobile Liability coverages at an additional cost of $60,834, the enhanced
Councillors’ Accident coverage at an additional cost of $1,443, as well as the
including Money Orders and Counterfeit Paper Currency into the $10 Million
limit at an additional cost of $2,875.
After
a comprehensive and careful analysis of the proposals (including the additional
OPTIONS/ DISCUSSION:
As
stated previously, RiskPro was hired to independently evaluate the RFP “Product”
evaluation criterion that included, meeting RFP specifications, scope of
coverage, enhancements and value added services. The Evaluation Committee, which included
RiskPro, evaluated and scored risk and claims management services and proponent
qualifications.
Jardine
Lloyd Thompson
Jardine
Lloyd Thompson Canada Inc. has been providing public entity insurance in
JLT’s
experience in
During
the interview process JLT confirmed they provide the following “Value Added”
items: (1) conduct complete appraisals
of all of the Town’s properties at no additional cost (other than heritage
buildings) in their first year of service; (2) provide an 18-month Rate
Stabilization plan; and (3) conduct a full actuarial analysis (at no additional
cost) within their first year of service.
The
JLT program has higher overall limits of insurance of $25 million for all
liability policies (currently $20 million). However some of the Liability coverages and the
Errors & Omissions policies have annual aggregate limits. Annual aggregates
limit the amount a policy will pay out during the annual term, in the case of
JLT’s liability policy the annual aggregate is the liability coverage limit. Therefore, Staff recommend accepting the $50
million limits at the premium quoted.; higher limits of $2.5 million per claim
with a $5 million aggregate limit for Environmental Impairment Liability
(currently $1 million with a $2 million aggregate); nil deductible applying to
the Direct Compensation section of the Automobile policy (currently $10,000
deductible applies); and earthquake coverage included on all buildings under
the Property policy (currently earthquake coverage is excluded).
It
is
The
following are some of the areas where the JLT program is not as broad (in
comparison to existing coverage):
·
aggregate
limits apply to Products and Completed Operations under the General Liability
policy, the Errors and Omissions policy and Employee Benefits coverage;
·
many
of the Property coverages provided include limits where none currently exist;
·
incidental
malpractice liability only is covered and on a claims-made basis;
·
Councillors’
Accident was included for “on-duty” only;
·
designated
heritage buildings are insured on a replacement cost basis only;
·
the
replacement cost definition under the Automobile policy is not as broad and;
·
lower
sub-limits apply to some of the coverages under the Crime policy.
It
should be noted that throughout the JLT submission there are several “Subject
To” requirements that may impact either the premium that applies or the
coverage itself. However, JLT advised Staff
during their interview that these clauses would not impact coverage or premium
terms. Staff will require that this is
confirmed in the Contract between JLT and the Town.
The
following section provides further details and mitigating strategies to address
some of the coverage differences.
Aggregate
vs. Per Occurrence Liability Limits:
Cowan’s
liability policies contain very few aggregate limits. This is to the benefit of the Town since the
aggregate limit or annual aggregate specifies the most that an insurer will pay
out in claims in any given policy year.
The
absence of an aggregate limit means that despite the number of claims presented
for any given policy year, the insurer will continue to respond to claims.
By
including aggregate limits, the insurance company can quantify their maximum
liability exposure in any one year, thus in theory they should be able to
charge less premium.
JLT’s
program contains aggregate limits for Products and Completed Operations under
the General Liability policy; as well as a general aggregate limit under the
Errors and Omissions policy. To this
end, Staff has attempted to mitigate this difference by: (1) having the insurer define what type of
claims will be considered a Products and Completed Operation in advance of any
liability claims; and (2) increase the liability limit to $50 million, thus
increasing the aggregate limit available for these policies.
With
respect to the aggregate limits for Products and Completed Operations, JLT and
its insurer have confirmed that only non-traditional municipal operations
completed for third parties in terms of products or services provided off
premises would fall under this category of claims and erode the aggregate. Some examples provided include: signs
produced by the municipality and sold to others and garage operations performed
on others’ vehicles whereby revenue was generated. The Town does not currently perform any
non-traditional municipal operations and therefore Staff are satisfied no
exposures exist in this area.
Examples
of traditional municipal operations that the Town performs for third parties
that would not be included under this aggregate limit include: building
inspections, road maintenance, snow removal, garbage collection, tree
maintenance, or any other statutory duty that the Town has to perform services
for or on behalf of third parties. Staff have received confirmation from JLT that
the aggregate limits do not include the traditional municipal operation
examples described above.
Staff
will ensure the contract between JLT and the Town includes the same
clarification. In addition, Staff contacted the Town’s insurance adjuster at
Cunningham Lindsey, who has been handling the Town’s account since 1997 and to
the best of his recollection the Town has not had a claim in any of these
traditional or non-traditional areas since 1997.
With
respect to increasing the liability limit, Staff recommends that the Town
purchase $50 million limits of liability coverage, thereby increasing its
available annual aggregate for any one policy year. The Town currently has $20
million limits per occurrence. Cowan advised that the maximum paid out under
the Errors and Omissions policy, in a single claim, was $8 million for one
municipality. Accordingly, Staff are
satisfied that the liability limits of $50 million would reasonably satisfy the
Town’s exposure in this area.
Property
Limitations
Currently,
the Town’s Property insurance coverage with Cowan is provided on a blanket
basis and not limited to the replacement costs estimated on the property
schedule. Furthermore, there is no
requirement for the Town to obtain any independent appraisals of Town buildings,
including heritage buildings, in order to have them reconstructed to their
original construction in the event of a serious or total loss.
JLT
Property policy has limits with respect to Building By-laws, Inflation
Protection, Temporary Locations, Installation Floater, Exterior Glass, Signs,
etc. For instance, the Cowan policy does
not have a limit that applies to Building By-laws, other than the overall
blanket limit of the policy. These
limitations could negatively impact the economic position of the Town in the
event of a loss. Staff contacted Cunningham Lindsey regarding the above limits
and to the best of their recollection the Town has not had a claim in any of
these areas since 1997. In Staff’s opinion these limitations are financially immaterial
to the Town.
Incidental
Malpractice – Claims made vs. Occurrence Based Coverage
Incidental
Malpractice is when a person or organization not in the medical profession performs
medical services (first aid) on another individual. Cowan’s Liability policy includes Incidental
Malpractice insurance at the full policy limits on an occurrence basis. JLT’s
Liability policy, however, includes only Incidental Malpractice coverage to the
full policy limits on a claims-made basis.
This
means that in the event of a claim, under the Cowan program, the policy that
was in place at the time the incident happened would respond. While the JLT
program will only insure claims that are reported during the current policy
period, providing that the incident occurred after the first policy renewal on
this basis. In the event that the Town
decided to go back to a program where this coverage is provided on an
occurrence basis, the Town would need to purchase additional “tail” coverage to
pick up claims that occurred during the period of time when the claims-made
policy was in place. Staff and RiskPro
are satisfied the purchase of tail coverage mitigates this difference in
policies.
Councillor
Accident
JLT quoted Councillors’ Accident coverage at $100,000 for Principal Sum on-duty only. Currently the Town has $70,000 for Principal Sum on a 24-hour basis. In order to eliminate this issue and to further enhance this coverage, Staff recommend purchasing the $200,000 Principal Sum on a 24-hour basis at an additional cost of $1,443 (plus PST) and have included it in the JLT premium price submission.
Heritage
Buildings
The
Property insurance coverage offered by JLT requires the Town to obtain
independent professional appraisals for all of its heritage properties or
historic buildings. Without these, in
the event of a serious or total loss, these building would be replaced with
current building construction materials and not restored to their original
construction. The Cowan policy includes heritage replacement cost coverage. Staff
will obtain independent professional appraisals for all of its heritage
properties or historic buildings. Staff will then obtain a quote for the
heritage replacement cost and will then obtain a quote for the heritage
replacement cost and will implement coverage.
Automobile
Replacement Cost
The
Cowan endorsement is unique in that there is no deduction for depreciation.
Furthermore, repair estimates are calculated by using all new parts (rather
than used parts) to repair damage. This difference could result in a vehicle
being declared a total loss versus being deemed repairable. In the event of a total loss, the
municipality has the option of purchasing a new vehicle, or accepting a cash
settlement for the amount it would cost to purchase a new vehicle.
JLT
has broad coverage as well with one exception: when determining the damage
sustained to an insured vehicle, they do not use new parts to estimate repairs.
Operations Staff have advised Finance Staff that this is not a major issue.
Crime
Coverage
The crime policy coverage provided by JLT was quoted with a $200,000 limit under the Crime insurance for Money Orders & Counterfeit Paper Currency, whereas the Town currently has coverage included in the $10 million bond limit. However, JLT provided Staff with a quote to include the Money Orders & Counterfeit Paper Currency coverage within the $10 million bond limit for an additional premium cost of $2,875 (plus PST). Staff recommend purchasing this coverage and have included it in the JLT premium price submission.
FINANCIAL
CONSIDERATIONS:
Based
on the insurance proposal evaluation and summary rating, Staff recommend the
2010 General Insurance Program commencing January 1, 2010 to December 31, 2010
be awarded to Jardine Lloyd Thompson in the amount of $1,040,613 inclusive of
PST where applicable ($973,958 exclusive of PST). This amount includes
liability coverage at $50 million for the General Liability, Errors &
Omissions, Non-Owned Automobile, Automobile Liability coverages at an
additional cost of $60,834 the enhanced Councillors’ Accident coverage at an
additional cost of $1,443 as well as the including
Money Orders and Counterfeit Paper Currency into the $10 Million limit at an
additional cost of $2,875.
The
2010 budget includes $1,745,523 for premiums related to the General Insurance
and Risk Management Program, excluding WSIB stop-loss insurance coverage. The 2010 budget was increased by $220,000 based
on an estimate provided by the incumbent insurer.
Staff
recommend obtaining a premium quote for the heritage replacement costs on Town heritage
buildings and implement coverage after obtaining independent professional
appraisals on all heritage properties and/or historic buildings
Staff
recommend that the Town’s insurance liability deductible be increased from
$50,000 to $100,000 and be funded from the existing 2010 insurance budget;
Staff recommend that the net savings (currently $654,910) related to the difference between 2010 insurance budget ($1,745,523) and the RFP award ($1,040,613) be transferred to the Insurance Reserve, account number 086 2700 300.
Staff
will retain the services of RiskPro at an upset limit of $5,000, to ensure that the Town receives the upgraded
coverage endorsements agreed to by JLT and to review the final policy wordings.
The JLT proposal includes the provision of an 18 month Rate Stabilization plan. In order to accommodate the payment plan for the 18 month policy, JLT has offered the option of a 12 month policy (January 1, 2010 to December 31, 2010) and a separate 6 month policy (January 1, 2011 to June 30, 2010) with both policies having the same monthly rate and the 6 month policy being invoiced in January 2011.
Staff recommend
that the Treasurer be authorized to extend the contract for General Insurance
and Risk Management Program for the period
Staff further recommend that the Treasurer be authorized to extend the contract for General Insurance and Risk Management Program for three(3) additional one year periods, provided that it is the best interests of the Town and the premium increase per year does not exceed 5% of the cost of the previous years' insurance program, exclusive of annual coverage changes.
RECOMMENDED
BY: ________________________ ________________________
Barb Cribbett, Treasurer Andy Taylor, Commissioner of Corporate Services
ATTACHMENTS:
None
Q:\Finance\Budget\2009\Fred\Insurance\RFP\Insurance Report to GC 121409 final.doc