Rising insurance premiums create challenges for local municipalities

The cost of insurance for local municipalities continues to rise.

Springwater Township received its annual insurance renewal notice last Friday at a cost of $625,709.52.

That’s almost $42,000 more than last year, or slightly more than seven per cent.

According to a report prepared by Renée Ainsworth, Springwater’s clerk and director of corporate services, which will be delivered at Wednesday’s council meeting, the municipality is paying more for insurance in four categories: municipal general liability, property, equipment breakdown and crime, owned automobiles, and cyber and privacy breach.

The township budgeted $649,710 for annual premiums, which will result in a net savings of $30,516. That money will go toward claims adjudication and payment of any deductibles, where required.

“Over the past several years, public entity insurance programs, which includes municipalities, have experienced significant insurance related losses,” Ainsworth wrote. “Some of the losses are driven by landmark cases, however overall, frequency and severity of claims have increased dramatically.”

In addition, the overall cost of claims, which considers escalating court awards, claims administration expenses and the ever-increasing replacement costs of assets, has continued to rise, she added.

“Increasing insurance costs is not unique to Springwater, as these costs have increased across Ontario,” Ainsworth wrote in her report.

Oro-Medonte Township’s insurance will cost $45,000 more this year — rising from $755,000 last year to $800,000 in 2024, representing a six per cent hike.

Essa Township experienced a large increase of about $150,000 — about 25 per cent — from $612,000 in 2023 to $767,000 in 2024.

Ainsworth’s report shows municipal general liability rates for Springwater have increased by $21,465 (including provincial sales tax) or 7.5 per cent over last year. Municipal general liability is the standard insurance policy that protects the township against liability claims for bodily injury and property damage.

“The main reasons for this increase are increased cost of claim settlements for Ontario municipalities in general, inflationary pressures on claims services and payments and adverse claims development specifically for Springwater,” Ainsworth noted.

Double-digit increases

Property, equipment breakdown, crime and cyber liability rates have increased by $14,743.60 (including provincial tax) or 13.5 per cent over last year.

Property and equipment breakdown coverage insures against direct physical loss of or damage to property of every description. Coverage applies to all property owned by the municipality and property for which the municipality is legally liable or has agreed in advance to insure.

Crime and cyber liability covers the cost of security breach notifications, privacy liability, crisis management, public relations expenses, as well as regulatory defence costs and penalties.

It can also pay for expenses incurred as a result of compromised online election results from outside hacking.

According to Ainsworth, the change is attributed to a $4-million increase in the insured value of the township’s properties, larger-than-normal catastrophic property losses in Canada over the past three years and the impact of cyber crimes.

“The increased frequency, severity and hacker proficiency have highlighted changes that need to be made to ensure cyber insurance products remain sustainable going forward,” Ainsworth wrote.

The cost for automobile insurance, which covers all vehicles owned, operated or leased by the municipality, except those vehicles leased or rented for less than 30 days, has increased by $5,727 or 4.98 per cent over 2023 rates.

Ainsworth said this change is a result of an increase in claims costs due to a variety of factors, including cost of parts, computerized elements, the prevalence of fraudulent automobile claims, particularly in Ontario, and claims paid on the township’s behalf, totalling $419,725 since 2009.

As part of her report, Ainsworth updated council on the County of Simcoe’s feasibility study on administering a municipal insurance pool to assist municipalities with rising insurance costs and gaining more control over their insurance products.

“Over the past year, the County of Simcoe has been conducting a feasibility study, which was presented to staff of all interested municipalities in February 2024,” Ainsworth said in the report. “The feasibility studies preliminary results show there is potential for significant savings under a municipal insurance pool.

“County council will be receiving a report on the outcome of the feasibility study in late March 2024 and next steps will be communicated once available,” she added.

According to Ainsworth, the process will be quite lengthy and the township will need to continue relying on commercial insurance products for 2024, and potentially 2025, depending on the timelines needed to fully develop and implement a municipal insurance pool program.

Feature image by iStock.com/Henry Baillie-Brown