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Municipal insurers heading for the exits, broker exec reports


May 11, 2021   by Adam Malik


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A decade of sliding down a slippery financial slope has prompted insurers to run for the exits in the municipal insurance line of business.

A number of companies have exited the market, with more possibly to follow, leaving brokers with fewer options for clients, says a brokerage executive.

Over the last decade, rising premiums on both the liability and property sides have taken a toll, explained David Richards, Toronto-based CEO and co-founder of EQUA Specialty Risk Partners Corporation.

“In Ontario, joint and several loss language in the court system has really been a disadvantage to the municipality’s insurance companies,” he told Canadian Underwriter, referring specifically to the liability end of the spectrum.

He used the example of a slip-and-fall as just one of the challenges municipalities are facing. A city may have done everything right — say, during the winter, it de-iced its sidewalks and kept its areas clean and clear of obstacles — and yet someone might still take a fall and suffer an injury. And then they might sue the city.

In court, the municipality may be able to show that they did 99% of what was required to prevent a fall. But let’s say the judge finds the city even 1% liable. Under joint and several liability, the city may still wind up being on the hook to pay out the entire claim, as Richards explained in an interview.

iStock.com/Robert Daly

“The insurance companies initially wrote the municipal business because historically it had been a very, very good risk,” Richards said. “[Municipal exposures] are, generally speaking, looked-after and risk-managed. [The cities are] protecting taxpayer dollars, they’re doing all the normal things. Unfortunately, they have losses like everybody does. They started to pay out these crazy demands for loss adjustments.”

On the property end of the spectrum, environmental factors are wreaking havoc. Calgary, for example, was hit last year by the most expensive hailstorm in Canadian history for insured losses. The East Coast is no stranger to damage caused by remnants of hurricanes that start in the United States. Forest fires continue to plague areas like British Columbia.

“You take that global municipal premium out there, [and] the billions of dollars that [municipal insurers] had to write off for insurance property losses — [and if] you compound that with the liability scenario just in Canada alone — it becomes an incredibly difficult class of business to get underwriters to write,” Richards observed. “It’s a very, very limited marketplace right now.”

Presumably, it’s limited because insurers are looking at high loss ratios and deciding to take a pass on an unprofitable business line. Two years ago, Richards reports, about 10 companies writing in the municipal lines space. Now, there are three or four. He said it wouldn’t be a surprise to see that number drop to around two.

“It’s becoming a real problem, the fact that the historic loss ratio for liability premiums and losses for this business is now well over that 100% number,” he said. “Insurance companies just can’t make any money. They only have so much capital that they want to invest to write premium dollars. Why would they put it into a market that’s going to give them losses? They’re going to move that capital out of municipality insurance and go write something else.

“It’s a typical supply-demand curve. And…prices have gone through the roof.”

 

Feature image by iStock.com/erhui1979


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8 Comments » for Municipal insurers heading for the exits, broker exec reports
  1. Rob Clark says:

    That isn’t really how joint and several liability works. Joint and several liability is where there are multiple tortfeasors, not one who did a percentage of what was expected of them. May want to review the legal term of Joint and Several Liability and do a quick update to this article.

    • Chris says:

      The author used a correct example where joint and several may come into play. Joint and several liability allows the plaintiff to collect from any of multiple tortfeasors. Typically, the city has the deepest pockets in any given matter, and tend to be bear a large proportion of most claims when they are involved, regardless of their prudence.

      “Joint and several liability are when multiple parties can be held liable for the same event or act and be responsible for all restitution required. In cases of joint and several liability, a person who was harmed or wronged by several parties could be awarded damages and collect from any one, several, or all of the liable parties.”

  2. Steve Miller says:

    Yep, agree with this comment above. Mr. Richards uses an example of Joint & Several that is actually apportionment of liability – NOT Joint & Several. Should get facts straight before posting an article because this causes much confusion for the reader and certainly any Municipality reading it. I’d be cautious trusting an “Insurance Professional” that doesn’t know the difference between Joint & Several and Apportionment of Liability.

    • Chris says:

      Seems like sour grapes.

      The author used a correct example where joint and several may come into play. Joint and several liability allows the plaintiff to collect from any of multiple tortfeasors. Typically, the city has the deepest pockets in any given matter, and tend to be bear a large proportion of most claims when they are involved, regardless of their prudence.

      “Joint and several liability are when multiple parties can be held liable for the same event or act and be responsible for all restitution required. In cases of joint and several liability, a person who was harmed or wronged by several parties could be awarded damages and collect from any one, several, or all of the liable parties.”

      • Steve says:

        In order for J&S to apply there has to be 2 or more wrongdoers, in the example used above (slip & fall) there is not – J&S would not be applicable in this instance. This is apportionment of liability, not J&S.

        Not sour grapes either, just tired of seeing misinformation being spilled about this – it causes much more confusion and uncertainty.

        • Chris says:

          His failure to identify a party other than the city in the lawsuit does not preclude the notion that there may have been more than one party to the lawsuit.

          Your assertion that there was only one party in this lawsuit is fiction, and is not something the author claims.

          There is no misinformation being spread. Perhaps the real problem is comprehension on your part.

          Let me guess – your picture is on the back of public busses…

  3. Josie says:

    Municipalities present other issues that make it tough for insurers to manage risks as well, like allowing builders to continually build in high risk areas, like flood plains, in order to increase the tax base. While these may not involve payments for lawsuits, or directly under municipal policies, they represent additional strain on claims costs emanating from municipalities. We are getting closer to the possibility that municipalities might face lawsuits not only for these decisions, but also for failing to maintain infrastructure as it ages.

  4. TBA says:

    Bottom Line, Municipality Risks must self insure substantially, in order for a company to cover the CAT Losses. Most municipality (in NON =COVID years) can self insure, this is what I have recommended for any of the municipal files I have ever had and have been profitable.

    Like any other class, when Brokers set up programs to edge out the competition get reckless with Deductibles, Extensions, Cover……

    Let’s get back to the basics and start doing the job a broker was meant to do and NOT by who can get the edge by adding an extra frill, or a program that has a ridiculously low deductible.

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