After COVID revenue slump, Canadian municipalities face rising insurance premiums

TORONTO, July 13 (Reuters) – Canadian municipalities reeling from a revenue pandemic are facing a further blow from soaring liability insurance costs, forcing them to raise property taxes or even cut services to residents.

The increase in premiums, of around 20% to 30% in many cases, is due to the decrease in the number of insurers, the increase in claims in an increasingly contentious climate and the uncertainty surrounding the amounts to be paid.

Cities need insurance to protect against accident claims on municipal property or on roads, and to deal with risks such as cyber attacks and natural disasters. It is therefore not possible to waive coverage.

The 444 municipalities of Ontario, Canada’s most populous province, would face a combined shortfall of about C $ 2.4 billion ($ 1.9 billion) from the pandemic, said the Ontario Financial Accountability Office in December.

“Any unforeseen increase in costs can come as a surprise,” even if municipalities have funds for the unexpected, said Travis Shaw, senior vice president of public finance at DBRS Morningstar.

If higher property taxes – the most reliable source of income at a time when other income, such as transit fees, have been decimated due to lockdowns – become unaffordable for residents, “the other alternative is to reduce expenses and services, ”he said. “They are required by law to achieve a balanced budget.”

Big cities facing sharp declines in transit costs had the biggest impact on revenues, but many smaller municipalities faced big cost issues as many families, taking advantage of what appears to be a permanent shift to working from home, at least part-time, have fled the big cities for the small towns in search of more space and affordable housing. This put pressure on these cities to speed up expensive infrastructure and service projects. Read more

SMALL POOL

Although the larger tax base helps, that benefit is “consumed by the cost of service” of growth, said Sandra Zwiers, chief financial officer for Essex County, about 350 kilometers southwest of central city ​​of Toronto, which received an influx of residents from around the city.

Essex County saw a 13% premium increase, or C $ 115,780, for this fiscal year, following a 10.6% increase the year before, Zwiers said.

Accident lawsuits against cities and towns have increased alongside cyberattacks and natural disasters, both nationally and globally, even as bond yields have fallen, resulting in stricter underwriting standards and higher premiums in the whole world.

While cities elsewhere, including the United States, have also faced higher costs, there has been a disproportionate impact on Canadian municipalities due to a small group of insurers, smaller populations and of the legal obligation for municipalities to have joint and several liability (J&S) coverage, according to DBRS Morningstar.

J&S covers the part of the settlement amounts for which the other parties at fault are responsible when they cannot pay them, so that the claimant is not cheated.

Along with the increase in premiums, some cities are facing higher deductibles and the removal of some coverages, including environmental damage and cybersecurity. Essex County’s franchise increased to C $ 100,000 per event last year, from C $ 25,000 previously.

For the town of Bracebridge, in the cottage district of Muskoka, some 175 kilometers north of Toronto, an increase in spending of C $ 160,000 in one year raises property taxes by 1%, said its mayor, Graydon Smith , who is also president of the Association of Municipalities of Ontario. .

“The frustration is that we could (manage risk) as well as anyone can, but that still doesn’t stop the 30% increase,” Bracebridge said this year, Smith said. What can be seen as inadequate risk management, meanwhile, could lead to larger increases, he added.

The municipalities in the insurance pools have better controlled costs, but even they are not immune.

The Region of Waterloo, Ontario has a pool of eight municipalities, funded by membership levies, with settlements split between the offending city, the pool and the excess insurance provider.

Although viewed as less risky than in other cities, premiums in Waterloo rose “modest” 9.8% last year, and a “significant” increase is expected this year, said Brian McEnhill. , risk manager for the insurance pool.

McEnhill attributed the increases in part to a greater number of claims – especially higher value ones for which the region is more dependent on its insurer – and a decrease in the number of underwriters.

OUTGOING INSURERS

Consolidation has shrunk the insurance market, including the 2019 acquisition of Frank Cowan Company, Canada’s largest municipal insurance provider, by Intact Financial Corp (IFC.TO).

An Intact spokesperson declined to comment.

Lloyds unions, including MS Amlin and the Ontario Municipal Insurance Exchange (OMEX), which allowed cities to come together to self-insure, are among those who have left the Canadian municipal market in recent years.

OMEX attributed its suspension in part to J&S.

“Underwriters only have a certain amount of premiums,” said David Richards, managing director of specialty insurance brokerage EQUA Specialty Risk Partners Corporation. “If they’ve been losing money on municipal insurance historically … then the capacity goes down. As a result, they focus on areas where they can make money.”

While J&S is not unique to municipal policies, the perception of governments as having deep pockets has resulted in disproportionate payments, said Pete Karageorgos, director of consumer and industry relations at the Insurance Bureau of Canada.

A growing number of cities in Ontario are renewing their calls to end J&S, but the government is still not convinced.

Province needs certainty that a change will lead to lower insurance rates, and there is not enough data “to confidently establish a causal link,” a spokesperson for the Ministry of the Attorney said. General of Ontario.

Blaming J&S is a “red herring,” said Kris Bonn, president of the Ontario Trial Lawyers Association.

“It is a fairer system of ensuring that the innocently injured victim is healed of his losses,” he said. “The municipality can still sue the other defendant if he pays more than his proportional share.”

($ 1 = 1.2468 Canadian dollars)

Reporting by Nichola Saminather in Toronto Editing by Denny Thomas and Matthew Lewis

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