Chris Wray, town manager of Black River-Matheson, was shocked when he discovered the municipality’s new insurance premiums this past November. He’d received notice that, upon renewal, the town’s municipal-insurance rate would more than double — rising roughly 116 per cent. “I've been around for about 25 years, and I've never seen an insurance increase like this,” says Wray, “even when 9/11 occurred.” The insurance hike represented an increase of more than $100,000, or the equivalent of a 2.4 per cent increase in taxes for the municipality of just over 2,400 people.
As soon as he saw the paperwork, he began reaching out to towns and cities across the northeast. None had premium hikes as large as Black River-Matheson, but the town of Hornepayne reported a 60 per cent increase, Elliot Lake a 43.5 per cent increase, and Tehkummah a 62 per cent increase — and Espanola’s rate had climbed by 49 per cent after the town raised its deductible by $15,000. After switching providers, Wray says, Black River-Matheson was able to whittle its premium increase down to 107 per cent. (Black River-Matheson’s previous insurer, Marsh, declined to provide comment to TVO.org.) The municipality is currently finalizing its budget, Wray says, and both spending cuts and tax increases are under consideration.
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Municipal-insurance premiums have been on the rise for decades, according to Graydon Smith, mayor of Bracebridge and president of the Association of Municipalities of Ontario. A 2011 AMO survey found that municipal-insurance premiums in the province increased by over 22 per cent, on average, between 2007 and 2011; in towns of fewer than 10,000 people, insurance cost $37.56 per person, while insurance in cities of 75,000 people or more cost an average of $7.71 per person. “It doesn't take very long for a significant insurance hike to really start to gobble up the capacity that municipalities have to do the work that they do: providing those services and providing that infrastructure for communities,” Smith says.
So what is municipal insurance, and why are rates rising?
Like individuals and businesses, municipalities pay for insurance. “We insure nearly $3 billion of property and about $1.5 billion worth of vehicles and equipment,” says Brian McEnhill, risk manager for Waterloo Region. Municipalities are liable if something happens to any of these assets — or if there’s an incident involving them.
Experts say several factors are driving up insurance costs globally. Historically low prime-interest rates and bond yields are diminishing investment returns for insurance companies, leading to premium hikes to meet shareholder demand. McEnhill adds that climate change has increased the occurrence of natural disasters and, as a result, boosted liability risks. Municipalities are also seeing greater costs incurred from flooding, tornadoes, fires, and other catastrophes.
Joint and several liability laws, which mean that multiple parties can be held liable in a claim, have existed in Ontario since the turn of the century. But it’s only in recent decades that settlements have ballooned, says David Boghosian, lawyer and author of The Law of Municipal Liability in Canada: “These types of claims, like a one-off motor-vehicle accident where you've got a catastrophic injury in a small municipality of 2,000 people, can result in that judgment in the range of $15 million.” Current legislation places liability on all defendants, regardless of the degree to which they were responsible for a particular incident. If one defendant is unable to pay, the other can be held wholly responsible for the settlement. “Conceptually, you can be 1 per cent responsible yet paying 100 per cent of the bill if the other party doesn't have the ability to pay,” says Smith. “And, of course, municipalities are believed to have deep pockets through their insurers.”
Frank Cowan, Black River-Matheson’s current insurer, declined to provide comment to TVO.org but referred to a 2021 report from the company that states: “Over the past few years, there has been a rise in the number of factors impacting municipal claims — factors that are driving up claims, which, in turn, are driving up the cost of insurance.” The report also identifies climate change, cyberattacks, and joint and several liability as factors contributing to the increases in municipal insurance.
Joint and several liability settlements have “gone up astronomically” in recent decades, Boghosian says, because plaintiff lawyers have argued for increased costs of care for clients who’ve undergone a life-altering injury. “It's a tough call,” he says. “I can see the side that’s saying we should collectively look after people that have been catastrophically injured. On the other hand, it's putting a burden on every ratepayer in a little municipality of 3,000 people.” And after rates increase, he says, “premiums never come down. They may go up slower at times than others, but they never go down.”
What rising insurance costs mean for municipalities
Though Smith says municipal-insurance rates may not be top of mind for residents, he warns that the steady increases take a toll, not only through service cuts and tax hikes, but also by hampering services in public spaces and facilities through “liability chill,” which can take the form of stricter bylaw enforcement, increased signage, and shorter operating hours for public facilities.
To mitigate liability exposure and control the risk of claims filed against them, municipalities use risk management. “Risk management is taking a look at all the operations and activities of the organization where potential incidents could occur and trying to manage that so that people don't get hurt,” says Dezell. “It's not unlike your own personal insurance; if you put winter tires on your vehicle, you get a discount for that.” But Dezell warns that increased risk management brings “liability chill.” Headlines around tobogganing bans or warnings to stop skating on stormwater ponds are “a direct correlation to claims being received,” says McEnhill.
“Risk management is a key and important thing,” Smith says. “But, at the same time, we recognize that people want to lead their regular existence without municipalities … intervening in what they perceive to be kind of fun, everyday activities.”
Are there alternatives?
McEnhill says that Waterloo Region’s insurance-pooling plan is one example of a way to cut costs. Through it, the region has a single insurance plan for itself and the three cities and four townships it encompasses. As a larger client, the region can negotiate better policies. Since 1998, the region’s premiums have increased around 30 per cent. “It was probably the best decision the Region of Waterloo ever made,” he says. Though the deductible is higher, the smaller towns get more coverage than they would otherwise be able to afford. And as there are risk managers on staff to oversee claims across the entire region, McEnhill says, it can be proactive in addressing areas of potential liability, such as road-and-trail maintenance and signage.
However, McEnhill cautions that municipal leaders needed convincing, especially those of the larger municipalities that didn’t stand to gain what the towns did. Proactive risk management also requires more investment from the municipality. “Sometimes you have to spend money to save money,” he says. Finally, premiums at the time were much lower, making it easier to pool their insurance: “It was certainly a lot easier to sell, in my opinion, back then than it would be now.”
McEnhill, Smith, and Dezell all say that joint and several liability legislation should be amended by the province. McEnhill and Smith suggest that legislating proportional payouts relative to each defendant’s actual responsibility for the claim, similar to what’s done in Saskatchewan, would help in instances where towns and cities are tacked onto a list of defendants. “If a municipality was found 25 per cent liable and another codefendant 75 per cent, but without funds to pay, the municipality would pay only its 25 per cent,” a 2010 AMO report explains. Placing caps on the cost of payouts, according to McEnhill, would also help relieve pressure on premiums. Boghosian agrees: “I think municipalities and their ratepayers need some protection from the escalating damage awards and the escalating insurance premiums. Joint and several [liability] modification — not elimination, but capping it, putting limits on it — is prudent.”
In an email to TVO.org, a spokesperson for the Ministry of the Attorney General says, “We are currently reviewing the feedback we received and are working towards solutions,” adding, “we have received some useful data and continue to explore ways to address these issues in a way that balances the concerns of municipalities with the needs of victims.”
Even with proactive risk management, however, Smith warns that municipalities are at the mercy of external forces that have driven up costs, and that they will eventually need help: “It's not something that municipalities can control on their own.”
Correction: An earlier version of this article stated that Graydon Smith is the mayor of Gravenhurst. In fact, he is the mayor of Bracebridge. TVO.org regrets the error.
This is one in a series of stories about issues affecting northeastern Ontario. It's brought to you with the assistance of Laurentian University.
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