Canadian Underwriter

City of Toronto insurance premiums to drop 4.3% on renewal, with some carriers seeking “increased role” in umbrella & excess liability program

May 8, 2015   by Canadian Underwriter

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With new insurers entering the Canadian market, the City of Toronto will save 11.2% on umbrella and excess liability coverage, on renewal next month, while its rate for boiler and machinery coverage is increasing by 5.6% due in part to an electrical failure incident at City Hall last year, a recent city staff report suggests.

The City of Toronto will save 11.2% on umbrella and excess liability coverage

Toronto City Council last week approved renewal of its insurance program and to delegate renewal the following three years to the deputy city manager and chief financial officer. A staff report suggests that while the city had limited choice in the market for an insurer to front its $5-million self-insured retention in liability – and for its property, medical malpractice and home daycare liability coverage – there are more insurers offering umbrella and excess liability in Canada.

For renewal of its insurance program for the year starting June 1, commercial brokerage Marsh Canada Ltd. “undertook an extensive marketing process that included approaching over 25 Canadian and international insurers including several Lloyds of London syndicates,” wrote Roberto Rossini, deputy city manager and chief financial officer, in a report earlier this year to the government management committee.

In his report, he recommended the purchase of several policies at a price of $5.113 million for the 2015-16 term starting June 1 (down 4.3% from $5.34 million for the 2014-15 term), which City Council approved in its three-day meeting May 5 through 7.

“Marsh advises that insurance market conditions show that in the fourth quarter of 2014, public entities on average experienced insurance rate increases of 0% to 10% but that new entrants to the Canadian insurance market are increasing competitive pressure for certain lines of insurance coverage,” Rossini wrote.

In its umbrella and excess liability policies, the city is covered – with a main limit of $95 million – for catastrophic coverage arising from bodily injury/property damage to third parties.

The insurers recommended to cover umbrella and excess liability, starting June 1, include ACE INA (for $5 million in umbrella liability), Markel Corp.’s Lloyd’s syndicate, through Elliott Special Risks (for the first layer, of $13 million, in excess liability), Royal & Sun Alliance (for the second excess layer, of $5 million), American International Group Inc. (for the third excess layer, of $20 million), and the Lloyd’s market (QBE and ACE) for the fourth layer, of $52 million.

“A number of new umbrella/excess liability insurers have entered Canada in the last year,” Rossini wrote in his report to the city’s government management committee. “In addition, certain incumbent insurers are seeking an increased role on the City’s program. This has resulted in substantial reductions in costs at renewal.”

As a result, the city is renewing its umbrella and excess liability program “with no major coverage or structure changes” and an 11.2% decrease in premiums to $1.642 million.

The city is essentially self-insured to $5 million for its primary liability coverage (including auto liability, garage auto, public officials errors & omissions and comprehensive general liability), which is fronted by ACE INA, whereby ACE INA provides insurance policies in exchange for an indemnity agreement to the value of those insurance policies at the annual premiums, allowing the city to meet its administration needs in such cases where evidence of insurance from licensed insurers is required.

Although 29 insurers were approached for renewal of the fronting of the city’s primary liability self-insured retention, “only ACE INA provided formal terms and very few insurers have the capacity to provide fronting for a Municipality as large as the City of Toronto,” Rossini noted.

Total premiums increased 1.7% to $397,893.

RSA provides boiler & machinery insurance, covering sudden and accidental breakdown of all boilers, pressure vessels, mechanical and electrical machinery and apparatus.

Last September, a hydro vault fire resulted in the closure of the City Hall building, the city stated in a press release at the time.

While RSA is increasing the premium by 5.6% on renewal “to account for the 1.8% increase in insured values and due to the 2014 electrical failure incident at City Hall, terms from competing insurers verify that the premium remains extremely competitive,” Rossini wrote.

The city also has $30 million in medical malpractice coverage from the Lloyd’s market, led by Marketform (owned by Cincinnati-based American Financial Group Inc.), covering its paramedic services, Toronto Public Health and its long-term care homes.

“The Medical Malpractice insurance marketplace remains limited and coverage costly,” Rossini wrote, adding the city was able to renew with its incumbent insurers “with no major coverage changes” and an 17.6% drop in premiums, though the structure was changed.

To renew its all-risks property policy with Factory Mutual Insurance Company – with a main limit of $1.844 billion – 27 insurers were approached.

“Since very few insurers have the capacity to provide the high limits required, the City is able to renew with the incumbent insurers with no major coverage changes and a 0.3% ($8,375) decrease in premiums” to $2.41 million, Rossini wrote.

Staff recommended the city purchase home daycare liability, with a main limit of $2 million, from the Lloyd’s market through Elliott Special Risks. This covers 189 active home child care providers contracted by the city, with 732 children enrolled in the program and 19 insurers were approached for renewal for 2015-16.

“Although very few insurers are interested in quoting this class of insurance (due to a sole supervisor in the home), the City is able to renew with the incumbent insurer with no major coverage changes and a 25% ($9,500) decrease in premiums to $28,000,” Rossini wrote.