Staff Report #1 – Re: 2019 – 2020 General Insurance Program Renewal

Staff Report #1

June 26, 2019

To All Commissioners

Re: 2019 – 2020 General Insurance Program Renewal

Recommendation

That the Commission:

i. APPROVE the general insurance program for the period of July 1, 2019 through June 30, 2020 at a total annual cost of $1,737,925 exclusive of applicable sales tax and deductible costs, the particulars of which are as follows:

ii. APPROVE the broker services for the period of July 1, 2019 through to June 30, 2020 with Marsh Canada at a cost of $77,250, and;

iii. DIRECT administration to work with Marsh to assess options for the 2020 renewal.

Background

In April of 2019, administration began the process with Marsh Canada Limited (the Commission’s broker) for the renewal of the general insurance program for the period of July 1, 2019 to June 30, 2020. After discussions commenced with the incumbent insurers, Marsh determined it would be necessary to test the market given a period of transition with rates consistently rising across the industry. The most challenging part of LTC’s insurance program is the automobile policy. Due to the size and nature of the fleet, there are a limited number of insurers who have an appetite for this class of business. Current market conditions are making accounts with an active claims history even more difficult to place. Marsh approached Northbridge, Travelers, Aviva, CNA, RSA and Intact, along with the incumbent Zurich, for terms on the fleet. Aside from Zurich, Northbridge was the only other insurer to provide any indication of interest in the public transit market.

Zurich initially quoted a 41.6% increase on the fleet policy for this renewal citing the development of older claims, increases in the cost to settle claims and an increase in the number of claims. However, after lengthy discussions, Marsh was able to negotiate a reduction in the rate increase to 30.0%. Zurich however indicated to Marsh that they are confident with their pricing and loss projections and will be looking to move the premiums further during the 2020 renewal.

In 2013 when the Commission switched to Zurich from Travelers, the annual premium for automobile liability was $1,060,912, which was only surpassed in 2018 with Zurich. The following table highlights an annualized change in premiums from 2012 – 2019 pertaining to both the premium impact and the growth in number of buses insured on the total annual increases. As indicated in the chart, the annualized increase in pure premium rates averaged 2.9% per year.

Comparison of Premiums 2012 – 2019

Coverage for the other categories is witnessing a more modest increase than the automotive segment. Set out in Enclosure I is a comparison of premiums for the period 2014 through this renewal period. The recommended renewal results in an annual premium increase of $435,174, the details of which are set out in the following table.

The assumptions for insurance program costs included in the Commission-approved 2019 operating budget are not sufficient to cover the negotiated increases detailed above. These increases will be worked into the 2019 Projection (to be tabled with the 2020 Operating Budget submission at the August Commission meeting) with the funding sources most likely coming from other expenditure savings (i.e. fuel).

Given the significant price adjustment within this renewal, administration will work with Marsh to review programs of other transit agencies and assess alternative options for the automobile policy going forward.

In addition to the premium costs, LTC historically pays on average between $600,000 and $700,000 annually in deductible costs relating to accident benefits (as required under no-fault insurance) and public liability claims cost. For 2018, deductible costs totaled $854,483, with accident benefits accounting for $146,155 (17%) of the total.

Deductible Payout History

The roles of adjuster and legal representation have significant influence on the level and extent of deductible payments made, and as such, an understanding of the nature of claims experienced by a transit provider is imperative in order to mitigate payouts to the greatest extent possible. The Commission has a long standing relationship with ClaimsPro with respect to insurance adjusting services and McCall Dawson Osterberg Handler LLP for legal representation relating to claims. There are no recommended changes to either the adjuster or legal representation associated with this renewal.

Enclosure

I – General Insurance Premium Comparison 2014-2019

Recommended by:

E.P. (Ted) Graham Mike Gregor

Manager of Accounting Director of Finance

Concurred in by:

Kelly S. Paleczny

General Manager

London Transit Commission – General Insurance Premium Comparison