7 Minutes Read TORONTO, ONTARIO (Reuters) – Municipalities in Canada are suffering an additional blow from rising liability insurance costs, pushing them to hike property taxes or potentially curtail services for citizens as a result of the pandemic’s financial impact. PHOTO FROM THE FILE: A development near the town of Kleinburg, Ontario, Canada, has a row of houses under construction. 13th of May, 2017. Chris Helgren/Reuters Premiums have risen by roughly 20% to 30% in many situations, owing to a decreasing pool of insurers, more claims in an increasingly litigious society, and uncertainty regarding compensation amounts. Cities require insurance to defend themselves against claims arising from accidents on municipal property or roadways, as well as to cope with hazards like as cyber attacks and natural catastrophes, so skipping coverage is not an option. According to Ontario’s Financial Accountability Office, the 444 municipalities in Canada’s most populated province would face a combined revenue shortfall of nearly C$2.4 billion ($1.9 billion) as a result of the pandemic. According to Travis Shaw, senior vice-president of public finance at DBRS Morningstar, “any unplanned increase in expenditures can come as a surprise,” however governments do have some contingency funds. If homeowners cannot afford increased property taxes, which are the most consistent source of revenue at a time when other sources of revenue, such as transit tolls, have been destroyed due to lockdowns, “the other possibility is lowering spending and reducing services,” he said. “By law, they have to get to a balanced budget.” Many smaller municipalities have faced significant cost challenges, as many families have fled large cities for smaller towns in search of more space and affordable housing, taking advantage of what appears to be a permanent shift to working from home, at least part-time, as many families have taken advantage of what appears to be a permanent shift to working from home, at least part-time. As a result, many cities are under pressure to expedite costly infrastructure and service initiatives. POOL FOR KIDS While larger tax bases help, Sandra Zwiers, director of finance for the County of Essex, which is about 350 kilometers southwest of downtown Toronto and has seen an inflow of inhabitants from all around the city, said the advantage is “consumed by the expense to service” the increase. This fiscal year, Essex County had a premium increase of 13%, or C$115,780, after a 10.6% increase the prior year, according to Zwiers. Accident-related litigation against cities and settlements have increased in tandem with cyber attacks and natural catastrophes, both locally and internationally, resulting in more stringent underwriting criteria and higher rates around the world. Showcase ( 2 images ) According to DBRS Morningstar, while cities in other countries, including the United States, have seen higher costs, Canadian municipalities have seen an outsized impact due to a small pool of insurers, smaller populations, and the legal requirement for municipalities to have joint and several liability (J&S) coverage. When other at-fault parties are unable to pay their share of settlement sums, J&S steps in to ensure that the plaintiff is not shortchanged. Along with rising premiums, some municipalities are seeing greater deductibles and the elimination of some coverage, such as environmental impairment and cyber security. Last year, Essex County increased its deductible from C$25,000 to C$100,000 per event. A C$160,000 increase in expenses in a year raises property taxes by 1% in Bracebridge, a cottage town in Muskoka about 175 kilometers north of Toronto, according to its mayor, Graydon Smith, who is also president of the Association of Municipalities Ontario. “The irritation stems from the reality that we could (control risks) as well as anyone, yet that hasn’t stopped the 30% spike” Bracebridge has witnessed this year, according to Smith. Meanwhile, he continued, what may be called insufficient risk management could result in higher hikes. Municipalities that participate in insurance pools have a better handle on expenses, but they are not exempt. The Waterloo region of Ontario has an eight-municipality pool that is funded by membership dues, with settlements split between the city at fault, the pool, and the excess insurance provider. Despite being a lower-risk city, premiums in Waterloo increased by a “moderate” 9.8% last year, and a “substantial” increase is projected this year, according to Brian McEnhill, the insurance pool’s risk manager. McEnhill attributed the hikes in part to a shrinking pool of underwriters and more claims, particularly higher-valued ones that have the region relying more on its insurer. EXISTING INSURANCE COMPANIES The insurance industry has declined as a result of consolidation, with Intact Financial Corp. acquiring Frank Cowan Company, Canada’s largest municipal insurance provider, in 2019. A spokeswoman for Intact declined to comment. MS Amlin and the Ontario Municipal Insurance Exchange (OMEX), which allowed communities to band together to self-insure, are among the Lloyds syndicates that have exited the Canadian municipal market in recent years. J&S was one of the reasons for OMEX’s suspension. “Underwriters only have a fixed amount of premium dollars,” said David Richards, CEO of EQUA Specialist Risk Partners Corporation, a specialty insurance brokerage. “If they’ve been losing money on municipal insurance in the past, capacity will be reduced. As a result, they concentrate on areas where they can profit.” Although J&S is not unique to municipal plans, the notion of governments as wealthy has resulted in large payouts, according to Pete Karageorgos, the Insurance Bureau of Canada’s consumer and industry relations director. A increasing number of municipalities in Ontario are renewing efforts to abolish J&S, but the provincial government is skeptical. The province requires assurance that a change will result in lower insurance premiums, and there is currently insufficient data “to confidently infer a causal connection,” according to an Ontario Ministry of the Attorney General spokesperson. According to Kris Bonn, President of the Ontario Trial Lawyers Association, blaming J&S is a “red herring.” “It’s a more equitable approach to compensate the unintentionally wounded person for their losses,” he explained. “If the other defendant pays more than their proportionate amount, the municipality can still pursue them.” (1 Canadian dollar = 1.2468 dollars) Nichola Saminather contributed reporting from Toronto, while Denny Thomas and Matthew Lewis edited the piece./n
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