Surging Insurance Costs Put Pressure On Canadian Municipalities

Canadian municipalities struggling from a pandemic-driven hit to their revenues are now facing the added blow of surging liability insurance costs, a double whammy that may force them to raise property taxes or cut services.

The increase in premiums, about 20% to 30% in many cases, has been driven by a shrinking pool of insurers, more claims in an increasingly litigious climate, and uncertainty around payout amounts.

Cities need insurance to protect against claims in the event of accidents on municipal properties or roads, and to deal with risks including cyber attacks and natural disasters.

The 444 municipalities in Ontario, Canada's most populous province, face a combined revenue shortfall this year of $2.4 billion due to the pandemic, according to Ontario's Financial Accountability Office.

Higher property taxes are the most reliable source of revenue at a time when other municipal income such as transit fees have been decimated due to lockdowns. However, higher property taxes could be detrimental to municipal residents.

While cities elsewhere, including in the U.S., have also faced higher insurance costs, there has been an outsized impact on Canadian municipalities due to a small pool of insurers, smaller populations and the legal requirement for municipalities to have joint and several liability (J&S) coverage.

Canadian municipalities are also required by law to run balanced budgets. Deficits are not permitted for Canadian cities and towns.

Municipalities in insurance pools have managed to control costs better but even they are not immune to the rising cost pressures.

Consolidation has shrunk the insurance market, most notably the 2019 acquisition of Frank Cowan Company, Canada's biggest municipal insurance provider, by Intact Financial Corp.