Staff Report #1
June 24, 2020
To All Commissioners
Re: 2020 – 2021 General Insurance Program Renewal
Recommendation
That the Commission:
- APPROVE the general insurance program for the period of July 1, 2020 through to June 30, 2021 at a total annual cost of $2,683,297 exclusive of applicable sales tax and deductible costs, the particulars of which are as follows:
| Coverage | Premium | Insurer |
| Automobile | $ 1,924,597 | Zurich |
| Additional Liability ($10 mil) | 465,000 | Catlin Canada / QBE |
| Property | 243,907 | Zurich |
| Travel Insurance | 750 | Industrial Alliance |
| Boiler & Machinery | 2,742 | RSA / XL Catlin |
| Directors & Officers | 19,000 | AIG |
| Environmental | 27,301 | Chubb |
2. APPROVE the broker services for the period of July 1, 2020 through to June 30, 2021 with Marsh Canada at a cost of $77,250; and
3. DIRECT administration to include a review of the insurance program in the 2021 Work Program.
Background
In April of 2020, administration began the process with Marsh Canada Limited (the Commission’s broker) for the renewal of the general insurance program for the period of July 1, 2020 to June 30, 2021. After discussions commenced with the incumbent insurers, Marsh determined it would be necessary to test the market given a period of transition with rates consistently rising across the industry. Similar to last year, they expected the renewal to be a very challenging placement. This is true of the industry both domestically and globally. As well as increasing rates, capacity has been limited as insurers continue to restrict the limits they provide and classes of business they will insure.
The most challenging part of LTC’s insurance program remains the fleet policy. Due to the size and nature of the fleet, there are a limited number of insurers who have an appetite for this class of business. Current market conditions are making accounts with an active claims history even more difficult to place. Marsh approached Northbridge, Travelers, Aviva, and RSA, along with the incumbent Zurich, for terms on the fleet. The marketing exercise did little to provide any other further options, as not one of the competitors chose to quote on the business.
Given the market conditions, it is clear that the insurance companies are taking the opportunity to tighten up their policies in terms of both limits and deductibles all while increasing the premiums. Last year’s auto renewal saw an increase of 33% and at the time Zurich was indicating their desire to increase deductibles from the current level of $50,000. Given the minimal savings identified, it was not deemed beneficial to move to a higher deductible at the time. For the current renewal, Zurich has declined to provide terms with the current deductible of $50,000 per claim, and provided options for deductible levels of $100,000, $250,000 and $500,000. Analysis of the options provided by Zurich resulted in the recommendation for the lowest deductible option (with the associated highest premium), noting the savings in annual premiums with the other two options was not sufficient to warrant to move to the higher deductible levels. The coverage included in the report recommendation provides for a $100,000 deductible per claim.
The liability limits for both general and auto have historically been set at $15 million. This past year, the auto policy had a limit of $10 million with additional $5 million coverage within the umbrella policy. The commercial general liability policy had a $5 million limit thus requiring both an excess liability coverage and umbrella liability coverage to get up to the overall $15 million. For the current renewal, Zurich has limited its exposure on the auto side to $5 million, thus requiring an excess liability policy for $5 million plus the traditional umbrella policy of $5 million. This is another example of the insurance carrier shedding a portion of their exposure, thus requiring purchasing an additional policy to remain at the same limit. Administration is recommending keeping with the same limit and thus adding the extra $5 million excess for auto as well.
Coverage for the other categories had been witnessing modest annual increases, but in 2020-2021 are also seeing the effects of the tough market. Coverage for crime has been removed from the general property policy, thus requiring a separate policy to maintain this benefit. Further, the property limit was increased by Zurich, citing the exposure faced when buses are parked on site versus being on the road.
Set out in Enclosure I is a comparison of premiums for the period of 2015 through this renewal period. The recommended renewal results in an annual premium increase of $945,372, the details of which are set out in the following table.
| Coverage | 2019-2020 | Premium Increase (Decrease) | Explanation for Increase/Decrease |
| Automobile | $ 1,451,509 | $ 473,088 | 33% increase in rate, including an increase in deductible from $50k to $100k and a reduction in liability from $10 million to $5 million |
| Additional Liability ($5 mil) | 100,000 | 365,000 | Includes excess policy of $5 million (see auto reduction) |
| Property | 145,341 | 98,566 | Increase in limit to cover buses on property previously covered under auto |
| Environmental | 24,284 | 3,017 | Premium increase due to progression of open claim |
| Travel Insurance | 750 | 0 | |
| Boiler & Machinery | 2,241 | 501 | |
| Directors & Officers | 13,800 | 5,200 | Deductible increases as well as additional exclusions |
| Broker Fees | 77,250 | 0 | |
| Total | $ 1,815,175 | $945,372 | Overall increase of 52.1% |
The assumptions for the insurance program costs included in the Commission-approved 2020 operating budget are not sufficient to cover the negotiated increases detailed above. These increases will be worked into the 2020 Projection (to be tabled with the 2021 Operating Budget submission at the August Commission meeting).
Given the significant price adjustment within this renewal, administration will include within the 2021 work plan, a full review of the insurance program including a peer review focusing on coverage best practices, deductible levels and liability limits, and other options that may exist.
In addition to the premium costs, LTC historically pays on average between $600,000 and $700,000 annually in deductible costs relating to accident benefits (as required under no-fault insurance) and public liability claims cost. For 2019, deductible costs totaled $683,371.
Deductible Payout History
| Year | Liability | Accident Benefit | Total |
| 2015 | 415,554 | 108,151 | 523,705 |
| 2016 | 444,083 | 282,828 | 726,911 |
| 2017 | 510,351 | 134,166 | 644,517 |
| 2018 | 708,368 | 146,115 | 854,483 |
| 2019 | 603,588 | 79,783 | 683,371 |
The roles of adjuster and legal representation have significant influence on the level and extent of deductible payments made, and as such, an understanding of the nature of claims experienced by a transit provider is imperative in order to mitigate payouts to the greatest extent possible. The Commission has a long standing relationship with ClaimsPro with respect to insurance adjusting services and McCall Dawson Osterberg Handler LLP for legal representation relating to claims. There are no recommended changes to either the adjuster or legal representation associated with this renewal.
Deductibles included within the table above were set at the level of $50,000 per claim. The move to $100,000 deductible will place increased pressure on the Public Liability Reserve Fund as claims costs paid by London Transit will increase. The level of the claims will be monitored and the contribution to the reserve (via operations) will need to be modified as options to do so are available.
Enclosure
I – General Insurance Premium Comparison 2015-2020
Recommended by:
E.P. (Ted) Graham, Manager of Accounting
Mike Gregor, Director of Finance
Concurred in by:
Kelly S. Paleczny, General Manager