How to reduce escalating municipal insurance costs

Ontario’s Ministry of the Attorney General has established a ‘technical table’ to review issues surrounding rising municipal insurance costs, including joint and several liability.

“Insurance costs for municipalities in Ontario have been rising, and the subject of much concern for at least the last 10 years,” Bonnie Adams, mayor of the Township of Carlow/Mayo in eastern Ontario and deputy warden of Hastings County, tells Canadian Underwriter. “The municipal sector has put a number of ideas on the table over the years, but proportionate liability and a fund for long-term healthcare costs for those with the worst injuries would be a great start.”

The Association of Municipalities of Ontario (AMO) says in a recent resource document that many Ontario municipalities are reporting increases to insurance costs of more than 20%. Adams adds that municipalities such as Red Lake, Thunder Bay, Terrace Bay, Elliot Lake and Huron Shores have experienced increases from 20% to 53%.

These costs are being driven by a hard insurance market, climate change, increased litigation and other factors that increase claims, as well as Ontario’s joint and several liability regime. This regime makes municipal government “the insurers of last resort in instances where they are not primarily responsible for an incident,” AMO reports.

Under joint and several liability, if other parties are unable to pay, damages can be recovered from any defendant, even if they are deemed just 1% responsible. “As a result, a fraction of fault can push municipalities to pay huge damage awards,” AMO says. “Often, they are targeted deliberately as ‘deep pocket’ insurers when other defendants do not have the means to pay.”

Compounding the issue is reduced capacity and options for brokers and their clients as some insurers have left the municipal insurance space as losses pile up.

iStock.com/Bob Corson

For AMO, a solution must be found that protects municipal taxpayers but also provides for victims of catastrophic loss incidents. In addition to joint and several reform, suggested  changes to be explored include a provincial fund for catastrophic losses to individuals that could limit municipal exposure to health costs, and pooling of insurance amongst municipalities to lower costs. The association has also proposed  implementing full proportionate liability and a cap on economic loss rewards as other jurisdictions have done.

“While municipal governments are awaiting a meaningful solution to these concerns, councils continue to need to redirect property tax dollars to pay rising insurance premiums,” AMO says. “This is funding that could go into improving and expanding needed services to residents and businesses.”

Adams says she is pleased the Attorney General established the technical table to address municipal insurance issues. “We welcome this as a positive development,” she says. “Ontario is overdue for a municipal-provincial conversation on the drivers of municipal insurance costs, the impacts those costs put on municipal taxpayers, the risk they create for local services, and collaborative solutions we can put in place to manage them.

“Hastings County and other municipalities believe improvements are possible. We are hopeful this technical table is the start.”

Rising municipal insurance costs put a “major cost pressure on our budgets and particularly on smaller communities like mine,” Adams says. AMO, along with the Federation of Northern Ontario Municipalities and the Northwestern Ontario Municipal Association, have identified rising insurance costs for their municipal members (some of whom have seen increases between 20% to 53%).

“In the end, the current policy and legal environment contributes to high municipal insurance costs – money that could otherwise go to better community services for residents – and even has environmental impacts, as contractors, property owners and others over-apply salt in winter that ends up harming our water supplies,” Adams says. “Beyond those concerns, we want to make sure that communities can continue to offer simple things that our exposure has made difficult, such as tobogganing, skateboarding and snowmobiling.”

Feature image by iStock.com/John Fader