After COVID revenue plummets, Canadian municipalities face soaring insurance premiums Reuters

Nicolas Saminasse

TORONTO (Reuters)-Canadian municipalities are facing additional blows from the soaring cost of liability insurance due to reduced income due to the pandemic, forcing them to increase property taxes and even cut services to residents.

In many cases, premiums have risen by about 20% to 30%. This is due to the increase in claims caused by the shrinking of insurance companies, the increasingly fierce litigation environment, and the uncertainty in the amount of compensation.

Cities need insurance to prevent claims for municipal property or road accidents, and to deal with risks including cyber attacks and natural disasters-so giving up insurance is not an option.

The Ontario Office of Financial Accountability stated that due to the pandemic, the 444 cities in Ontario, Canada’s most populous province, will face a total revenue gap of approximately CAD 2.4 billion (US$1.9 billion) https://www.fao-on.org/ en/ December’s blog/publication/municipal-finances-2020#_ftn32.

Travis Shaw, DBRS Morningstar’s senior vice president of public finance, said that although the municipality does have some emergency funds, “any unexpected cost increase may be unexpected.”

He said that if higher property taxes—the most reliable source of income when other incomes such as transportation costs are drastically reduced due to the blockade—become unaffordable for residents, “the other option is to cut spending and Reduce service”. “The law requires them to achieve a balanced budget.”

Large cities that face a sharp drop in transit fees have hit income the hardest, but many smaller cities face huge cost challenges as many families take advantage of the opportunity that seems to permanently switch to working from home, at least part-time, and flee the big cities to find small towns. More space and affordable housing. This puts pressure on these towns, requiring them to speed up expensive infrastructure and service projects.

Small swimming pool

Sandra Zwiers, the Finance Director of Essex County, located about 350 kilometers southwest of downtown Toronto, said that while a larger tax base helped, the benefits were “consumed by service costs.” . Around the city.

Zwiers said that Essex County’s premiums this fiscal year increased by 13%, or $115,780, compared to a 10.6% increase in the previous year.

Domestically and globally, accident-related lawsuits against cities and settlements are on the rise along with cyber attacks and natural disasters, even if bond yields decline, leading to stricter global underwriting standards and higher premiums.

Although other cities, including the United States, also face higher costs, the small number of insurance companies, the small population, and the legal requirements for joint liability (J&S) to municipalities have had a huge impact on Canadian municipalities. DBRS Morningstar reports.

J&S assumes the share of the settlement amount that the other party at fault should be liable for when it is unable to pay, so the plaintiff will not suffer losses.

In addition to rising premiums, some cities and towns also face higher deductibles and the cancellation of some insurance coverage, including environmental damage and the Internet. The Essex County deductible has increased from the previous 25,000 Canadian dollars to the 100,000 Canadian dollars per occurrence last year.

For the town of Bresbridge, located in the Muskoka Lodge area, about 175 kilometers north of Toronto, an additional $160,000 per year would increase the property tax by 1%, Mayor Grayden Smith said.

Smith said: “The frustrating thing is that we can (manage risk) and anyone can do this, but it still cannot stop 30% growth.” He added that at the same time, what might be seen as inadequate risk management could lead to greater interest rate hikes.

The municipalities in the insurance pool have better control of costs, but even they are not immune.

The Waterloo region of Ontario has a pool of funds made up of 8 municipalities, funded by taxation of members, and the solution is distributed among the city at fault, the pool, and the excess insurance provider.

Insurance pool risk manager Brian McEnhill said that although it is considered less risky than other cities, Waterloo’s premiums rose “modestly” by 9.8% last year and is expected to increase “significantly” this year.

McKinhill attributed part of the increase to more claims—especially the region’s greater reliance on high-value claims from its insurance companies—and a decline in insurers.

Exit the insurance company

Consolidation has narrowed the insurance market, most notably the acquisition of Frank Cowan Company, Canada’s largest municipal insurance provider, by Intact Financial Corp in 2019 https://www.reuters.com/article/us-guaranteeco-ma-intact-financial- idUSKCN1V51VK.

An Intact spokesperson declined to comment.

Lloyds (LON:) syndicates, including MS Amlin and Ontario Municipal Insurance Exchange (OMEX), which enable cities to unite for self-insurance, are among those who have left the Canadian municipal market in the past few years.

OMEX attributed part of its suspension to J&S.

“Insurers only have a certain amount of premiums,” said David Richards, CEO of EQUA Specialty Risk Partners Corporation, a professional insurance brokerage firm. “If they have historically lost money on municipal insurance…then capacity will shrink. Therefore, they focus on where they can make money.”

Pete Karageorgos, director of consumer and industry relations at the Insurance Agency of Canada, said that although J&S is not unique to municipal policies, the government’s strong financial position drives huge spending.

More and more cities and towns in Ontario are again calling for the cancellation of J&S, but the government still doesn’t believe it.

A spokesperson for the Attorney General of Ontario said that the province needs to determine whether a change means a drop in insurance rates, and there is not enough data “to confidently draw causality.”

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

“This is a fairer system for innocent injured victims to heal from their losses,” he said. “If another defendant pays more than their proportional share, the city government can still hunt them down.”

($1 = 1.2468 Canadian dollars)