HomeMy WebLinkAboutFCS-15-073 - Group Benefits Contract - 1 year ExtensionStaff Report
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REPORT TO: Committee of the Whole
DATE OF MEETING: May 11, 2015
SUBMITTED BY: Dan Chapman, Deputy CAO, (519) 741 -2200 x7347
PREPARED BY: Ita Magid, Supervisor of Benefit Development, (519) 741 -2200
x7219
WARD(S) INVOLVED: N/A
DATE OF REPORT: May 6, 2015
REPORT NO.: FCS -15 -073
SUBJECT: Group Benefits Contract — 1 Year Extension
RECOMMENDATION:
That the City of Kitchener's group insurance provider contract with Sun Life
Financial be extended by an additional year (May 1, 2016 to April 30, 2017)
BACKGROUND:
The City is obligated to provide group benefits to its employees as outlined in the
Employment Standards Act and in its collective agreements with each union group.
In February 2010, city council directed staff to initiate a market analysis of group
benefits providers who could offer the city's benefit program starting in 2011. Following
that council direction, the city engaged the services of Mercer (Canada) Limited to
complete a market analysis and conduct a competitive vendor search. The successful
proponent was Sun Life Financial.
Although group benefits are exempt from the processes outlined in the City's
Purchasing By -Law, a five year cycle for review of benefits providers has been
traditionally followed to ensure that the City's programs remain competitive, both from
financial and service perspectives. This would put the date of next review in mid -2016.
REPORT:
As of July 2011, Sun Life Financial was awarded the role of the group insurance
provider for the City's group benefit program. The first contract renewal was effective
May 1, 2014 for a one -year period. The second renewal has been recently negotiated
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and will be effective May 1, 2015. The City would normally be due to undertake a
market review in mid -2016, being the end of a five year term with Sun Life Financial.
Based on the claims data from the last renewal to date, it appears that Life Insurance
claims continue to exceed premiums which points to a substantial increase in the
premium rates for the current renewal as well as the next scheduled renewal in 2016.
Long Term Disability (LTD) is also likely to require a substantial increase over the next
year since the disability cases on the books at the current time are mostly of a severe
and prolonged nature.
Through negotiations with the City, Sun Life has agreed to guarantee the Life and LTD
rates for the next two years, from May 1, 2015 to April 30, 2017. This would see a cost
savings of approximately $133,972. This two year rate guarantee will assist the City in
terms of budget certainty for the next 24 months, while hopefully allowing time for
periods of higher Life Insurance and LTD claim activity to be replaced or mitigated by a
relatively lower claims period. Going to market during period of high claim activity will
not be attractive to the quoting carrier marketplace.
In light of the considerations outlined above, it is recommended that the City extend the
contract with Sun Life Financial by two years, instead of one year as was originally
anticipated. This will result in a total contract term of six years vs. the traditional five -
year term thus, necessitating Council approval of the additional contract year.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
This recommendation supports the City's strategic directions for financial management
which seek to ensure responsible stewardship of public funds within a supportive policy
framework.
FINANCIAL IMPLICATIONS:
An estimated cost savings of $133,972 will be realized if the City is able to take
advantage of Sun Life's two year rate guarantee.
ACKNOWLEDGED BY: Dan Chapman, Deputy CAO
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