(Reuters) – Canadian municipalities affected by a pandemic-driven hit on revenue are facing a further blow from rising liability insurance costs, forcing them to raise property taxes or even reduce services for residents.
The increase in premiums, around 20% to 30%, has in many cases been driven by a shrinking pool of insurance companies, more damages in an increasingly contentious climate and uncertainty about the amount of payments.
Cities need insurance to protect against damages in the event of accidents on municipal property or roads, and to manage risks including cyberattacks and natural disasters – so refraining from coverage is not an option.
The 444 municipalities in Ontario, Canada's most populous province, would face a total loss of revenue of about $ 2.4 billion ($ 1
"Any unexpected cost increase may come as a surprise," even though municipalities have some contingency funds, says 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 incomes, such as transit fees, have decreased due to blockages – become unaffordable for residents, "the second option is to reduce costs and reduce services," he said. "They are required by law to reach a balanced budget."
Larger cities facing steep declines in transit fees had the biggest impact on revenue, but many smaller municipalities have faced major cost challenges, as many families take advantage of what appears to be a permanent transition to work from home, at least part-time, fleeing large ones. cities for smaller cities in search of more space and affordable housing. This has put pressure on these cities to speed up expensive infrastructure and service projects.
Accident-related trials against cities and settlements have risen alongside cyberattacks and natural disasters, both nationally and globally, even as bond yields have slipped, resulting in stricter security standards and higher premiums around the world.
Although cities elsewhere, including the United States, have also had higher costs, it has had a major impact on Canadian municipalities due to a small pool of insurance companies, smaller populations and the legal requirement for municipalities to have joint and several liability protection. according to DBRS Morningstar.
J&S covers the proportion of settlement amounts for which other incorrect parties are responsible when they are unable to pay them, so that the plaintiff does not become short. changed.
Along with rising premiums, some cities are facing higher deductibles and removal of some coverage, including environmental write-downs and cyber.
Closing insurance company
Consolidation has reduced the insurance market, most notably the acquisition of Frank Cowan Co., Canada's largest municipal insurance provider in 2019, by Intact Financial Corp.
An intact spokesman declined to comment.
Lloyd's syndicates including MS Amlin and the Ontario Municipal Insurance Exchange, which allowed cities to group themselves to insure themselves, are among those that 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 premium dollars," says David Richards, CEO of Special Insurance Brokerage EQUA Specialty Risk Partners Corp. "If they historically lose money on municipal insurance … then capacity shrinks. As a result, they focus on where they can make money."
A growing number of cities in Ontario are renewing calls for the abolition of J&S, but the government remains unconvinced.
The province needs security for a change. "There is a lack of information, and there is not enough information" to establish a causal link with certainty, "said a spokesman for the Ontario Department of Justice. President Kris Bonn.
"It is a fairer system to have the innocently injured victim healed of his losses," he said. "The municipality can still follow the other defendant if they pay more than their proportionate share." Catalog