Why are municipal insurance rates skyrocketing in Ontario?

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Chris Wray, Black River-Matheson’s city manager, was shocked to discover the city’s new insurance premiums last November. He had been informed that the municipal insurance rate would more than double upon renewal — by about 116 percent. “I’ve been working for about 25 years and I’ve never seen such an increase in insurance,” Wray says, “not even when September 11 happened.” The insurance increase represented an increase of more than $100,000, or the equivalent of a 2.4 percent tax increase for the municipality of just over 2,400 people.

As soon as he saw the paperwork, he started reaching out to towns and cities in the northeast. None had premium increases as large as Black River-Matheson, but the city of Hornepayne reported a 60 percent increase, Elliot Lake a 43.5% increase, and Tehkummah a 62 percent increase — and Espanola’s rate was up by It rose 49 percent after the city increased the deductible by $15,000. After switching providers, Wray says, Black River-Matheson was able to reduce its premium increase to 107 percent. (Black River-Matheson’s previous insurer, Marsh, declined to comment on TVO.org.) The city is currently finalizing its budget, Wray says, and is considering both spending cuts and tax hikes.

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Graydon Smith, mayor of Bracebridge and president of the Association of Municipalities of Ontario, said municipal insurance premiums have been rising for decades. a 2011 AMO survey found that county insurance premiums increased by more than 22 percent on average between 2007 and 2011; in cities with fewer than 10,000 people, insurance costs $37.56 per person, while in cities with 75,000 people or more, insurance costs an average of $7.71 per person. “It won’t be long before a significant increase in insurance will really begin to sap the capacity that municipalities have to do the work they do—provide those services and provide infrastructure for communities,” Smith said.

So what is municipal insurance and why are the rates rising?

Just like private individuals and companies, municipalities pay for insurance. “We insure nearly $3 billion in property and approximately $1.5 billion in vehicles and equipment,” said Brian McEnhill, risk manager for Waterloo Region. Municipalities are liable if anything happens to any of these assets – or if there is an incident involving them.

Experts say several factors are driving up insurance costs worldwide. Historically low prime interest rates and bond yields reduce investment returns for insurance companies, leading to premium increases to meet shareholder demand. McEnhill adds that climate change has increased the number of natural disasters and, as a result, increased liability risks. municipalities also see higher costs is made from floods, tornadoes, fires and other disasters.

Since the turn of the century, Ontario has had joint and several liability laws, which mean that multiple parties can be held liable in a claim. But it’s only in recent decades that settlements have exploded, says David Boghosian, attorney and author of The Municipal Liability Act in Canada“Claims like this, such as a one-time car accident in which you suffered a catastrophic injury in a small town of 2,000 people, could result in a $15 million judgment.” Current law imposes liability on all defendants, regardless of the degree to which they were responsible for a particular incident. If one defendant can’t pay, the other can be held fully responsible for the settlement. “Conceptually, you can be 1 percent responsible and still pay 100 percent of the bill if the other party can’t pay,” Smith says. “And of course it is assumed that municipalities have deep pockets through their insurers.”

Frank Cowan, the current Black River-Matheson insurer, declined to comment on TVO.org, but referred to a 2021 report of the company stating: “In recent years, the number of factors influencing municipal claims has increased — factors that drive up claims, which in turn drive up the cost of insurance.” The report also identifies climate change, cyber-attacks and joint and several liability as contributing factors to the increase in municipal insurance.

Joint and several liability regimes have “risen astronomically” in recent decades, Boghosian says, as plaintiffs’ attorneys have argued for higher health care costs for clients who have suffered life-altering injuries. “It’s a tough decision,” he says. “I see the side that says we must collectively care for people who have been catastrophically injured. On the other hand, it puts a burden on every taxpayer in a small town of 3,000 people.” And after the rates go up, he says, “the premiums never come down. Sometimes they go up more slowly than others, but they never go down.”

What rising insurance costs mean for municipalities

While Smith says municipal insurance may not be the top priority for residents, he warns that the steady increases are taking their toll not only from service cuts and tax increases, but also from hindering service in public spaces and facilities through “limitation of liability.” ,” which could take the form of stricter law enforcement, increased signage, and shorter opening hours for public facilities.

To mitigate liability risks and manage the risk of claims brought against them, municipalities use risk management. “Risk management is looking at all the operations and activities of the organization where potential incidents can occur and trying to manage that so people don’t get hurt,” says Dezell. “It’s no different than your own personal insurance; if you put winter tires on your car, you get a discount.” But Dezell warns that increased risk management brings “liability cold.” Newspaper headlines around tobogganing bans or alerts on stop skating on rainwater ponds are “a direct correlation with receiving claims,” ​​McEnhill says.

“Risk management is an important and important thing,” Smith says. “But at the same time, we recognize that people want to live their normal lives without municipalities… intervening in what they consider fun, everyday activities.”

Are there alternatives?​​​​​​​

McEnhill says Waterloo Region’s insurance pooling plan is an example of one way to cut costs. As a result, the region has one insurance plan for itself and the three cities and four municipalities it includes. As a larger customer, the region can negotiate better policies. Since 1998, premiums in the region have increased by about 30 percent. “It was probably the best decision the Waterloo region has ever made,” he says. While the deductible is higher, the smaller towns get more coverage than they could otherwise afford. And since there are risk managers overseeing claims across the region, McEnhill says, it can be proactive in addressing potential areas of liability, such as road and trail maintenance and signage.

However, McEnhill warns that municipal leaders need to be convinced, especially those of the larger municipalities who could not win what the cities were doing. Proactive risk management also requires more investment from the municipality. “Sometimes you have to spend money to save money,” he says. Finally, at the time, premiums were much lower, making it easier to bundle their insurance policies together: “It was definitely a lot easier to sell then in my opinion than it would be now.”

McEnhill, Smith and Dezell all say joint and several liability laws should be changed by the county. McEnhill and Smith suggest it would help to establish proportional payouts based on each defendant’s actual responsibility for the claim, similar to what’s done in Saskatchewan in cases where cities are put on a defendant’s list. “If a municipality were found 25 percent liable and another co-defendant 75 percent, but with no money to pay, the municipality would only pay 25 percent.” a 2010 AMO report explains. Placing limits on the cost of payouts would also help ease premium pressures, McEnhill said. Boghosian agrees: “I think municipalities and their taxpayers need some protection from the rising claims and rising insurance premiums. Joint and multiple [liability] modification – not elimination, but capping, setting limits – is sensible.”

In an email to TVO.org, a spokesperson for the Attorney General’s Department said: “We are currently reviewing the feedback we have received and working on solutions,” adding: “We have received some useful data. and continue to explore ways to address these issues in a way that balances the concerns of municipalities with the needs of victims.”

However, even with proactive risk management, Smith warns that municipalities are at the mercy of outside forces that have pushed up costs, and that they will eventually need help: “It’s not something municipalities can control alone.”

Correction: An earlier version of this article stated that Graydon Smith is the mayor of Gravenhurst. In fact, he is the mayor of Bracebridge. TVO.org regrets the error.

This is one in a series of stories about problems affecting northeastern Ontario. It has been brought to you with the help of Laurentian University.

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