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Home My WebLink About2012-05-02 PACKET 04.I.***************** * * * * * * * * * * * * * * * * * * * * * * * * * * * * * ** COUNCIL ACTION REQUEST Consider renewal of the workers compensation policy from the League of Minnesota Cities Insurance Trust (LMCIT) totaling $248,337 with a $10,000 per occurrence medical deductible and 14.5% premium credit. STAFF RECOMMENDATION Staff recommends the Council authorize the purchase of workers compensation insurance policy for the policy period April 4, 2012 to April 4, 2013. BUDGET IMPLICATION ADVISORY COMMISSION ACTION N/A SUPPORTING DOCUMENTS: ® MEMO /LETTER: City Clerk Caron Stransky dated March 20, 2012 ❑ RESOLUTION: ❑ ORDINANCE: ❑ ENGINEERING RECOMMENDATION: ❑ LEGAL RECOMMENDATION: ® OTHER: Insurance Proposal ADMINISTRATORS COMMENTS Administrator Date [ * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * COUNCIL ACTION TAKEN: ❑ APPROVED ❑ DENIED ❑ OTHER The City of Cottage Grove received its annual premium quotations from the League of Minnesota Cities Insurance Trust (LMCIT) for workers compensation insurance covering City employees, the Mayor and City Council Members, and members of the Cottage Grove Economic Development Authority for the 4/03/2012 to 4/03/2013 policy period. The LMCIT offers its members a number of premium options. Reaular Premium Option Under the regular premium option, the premium is calculated based on City payroll times the classification rate per $100.00 payroll equals the premium. The following table shows the total payroll broke down by classification and includes the classification rate and 2012 premium. �3fl12. PayroklflescrapUon COde '2(3d2 s Pen € $toff sPreiniurn . .. �, ,':Peyrotl STREET & ROAD 5506 600,000 7.89 47,340 CONSTRUCTION - Applies to employees maintaining or constructing City streets, including street cleaning, sewer cleaning and removal of snow from City streets and sidewalks. AMBULANCE SERVICE 7380 295,000 4.72 13,924 (Not Volunteer) - Applies to ambulance drivers and paramedics. WATERWORKS - Applies 7520 420,000 4.03 16,926 to employees working in the City water plant and includes incidental line repair (not line construction) and meter readers. FIREFIGHTERS (Not 7706 220,000 6.39 14,058 Volunteer) - Applies to full -time firefighters. Pyrot}Descrion Cody' 2011 ;': 8ata 2111 �;: Payro(1 �' : Peemiutri- FIREFIGHTERS 7708 30,089 118.39 35,622 (Volunteer) - Applies to City's part-time firefighters. The premium base for this classification is the population served for fire protection. We do not qualify for 10% non- smoker credit; 90% required. (74% of employees are non- smokers. POLICE- NONSMOKER- 7720 3,130,000 145 107,985 Applies to the City's police department and qualifies for 10% non - smoker credit; 90% required. (95% of employees are non - smokers POLICE RESERVES - 7722 26,461 221 585 Reserve officers will j augment and assist sworn j officers, and perform limited law enforcement duties not requiring the assignment of sworn officers. CITY SHOP & YARD - 8227 225,000 3.59 8,078 Applies to employees involved with shop and yard work doing maintenance on City vehicles and equipment. CLERICAL - Applies to 8810 1,750,000 0.80 14,000 employees engaged exclusively in bookkeeping, recordkeeping or in other office work where books and records are kept or correspondence is conducted. CLUB - COUNTRY /GOLF- 9060 575,000 1.96 11,270 Applies to employees at the City golf course /clubhouse. PARKS - Applies to 9102 660,000 3.65 24,090 employees in the City's parks stem. Overall, the manual workers compensation premium increased from $294,888 to $303,190. In many of the categories above, the premium increased or decreased due to changes in payrolls and /or in the classification rates per $100 of payroll. Experience Modifier The manual premium ($303,190) is then adjusted by an experience modifier. An experience modifier is a term used in the American insurance business and more specifically in workers' compensation insurance. It is a credit or debit factor based on our loss and payroll history. If the experience is worse than expected, we are "punished" with a high modifier (more than a 1.0) and this goes against our premium. However, if our experience modifier is better than expected, we are then "rewarded" with a lower modifier (less than a 1.0) and we pay less in premium dollars. For example, an experience mod of 0.80 = a 20% premium credit, while a 1.20 = a 20% percent increase. In determining the experience modifier, claims in the oldest three (3) out of the past four years are considered. The most recent past year is not considered. This year's experience modifier covers losses for the years 2008, 2009 and 2010. For this three -year period, there were 63 claims totaling $633,259: 2008 -24 claims totaling $343,029.74 6 2009-18 claims totaling $206,360.54 O 2010 -18 claims totaling $22,655.58 Next year, 2008 will drop off and 2011 will be included in the experience modifier where we had 14 claims totaling $21,512.85. CITY ARENA 9182 275,000 1.71 4,703 OPERATIONS - Applies to employees working at the Ice Arena, including concession stand workers. MUNICIPAL 9410 765,000 .58 4,437 EMPLOYEES ELECTED OR 9411 43,116 .24 108 APPOINTED OFFICIALS - Mayor and City Council Members BOARDS & 9411 25,500 .24 64 COMMISSION - Includes Members of CG Economic Development Authorit TOTAL 303,190 Overall, the manual workers compensation premium increased from $294,888 to $303,190. In many of the categories above, the premium increased or decreased due to changes in payrolls and /or in the classification rates per $100 of payroll. Experience Modifier The manual premium ($303,190) is then adjusted by an experience modifier. An experience modifier is a term used in the American insurance business and more specifically in workers' compensation insurance. It is a credit or debit factor based on our loss and payroll history. If the experience is worse than expected, we are "punished" with a high modifier (more than a 1.0) and this goes against our premium. However, if our experience modifier is better than expected, we are then "rewarded" with a lower modifier (less than a 1.0) and we pay less in premium dollars. For example, an experience mod of 0.80 = a 20% premium credit, while a 1.20 = a 20% percent increase. In determining the experience modifier, claims in the oldest three (3) out of the past four years are considered. The most recent past year is not considered. This year's experience modifier covers losses for the years 2008, 2009 and 2010. For this three -year period, there were 63 claims totaling $633,259: 2008 -24 claims totaling $343,029.74 6 2009-18 claims totaling $206,360.54 O 2010 -18 claims totaling $22,655.58 Next year, 2008 will drop off and 2011 will be included in the experience modifier where we had 14 claims totaling $21,512.85. Last year, the City's experience modifier decreased from 1.18 to 1.12. This year our experience modifier dropped from 1.12 to 1.10. The 1.10 modifier decreased our premium an additional $30,309 for 2012 policy period. For many years, our modifier gradually decreased each year until 2006 when it dropped to .79. All it takes is a few bad claims for the modifier to go up, as depicted in the following chart. F Premium. Credt-.: Workers Compensation Experience Modification Net beposlt ' Premiurci..' 250 1.50 %0 1995 - 2010 Policy Periods 291 693 1.E8 1.2 1.E8 1.12 .04 1.01 1.10 1.10 1 0.92 /102 0.9 0.91 6.84 0.90 0.8 - - - - - -- - -... 0.82 0.80 0.79 i x I-- _...., Optic,RS.' The League of Minnesota Cities offers cities a number of options when renewing their insurance policy. 1. Deductible Option The Leagues offers a deductible option to lower the premium in return for agreeing to reimburse them for paid medical losses up to a set deductible. If the City selects a deductible option, the deductible applies per occurrence to medical costs only. There are six deductible options ranging from a $250 deductible with a 1.5% premium credit to a $50,000 deductible with a 28% premium credit. The deductible premium options quoted by the League of Minnesota Cities Insurance Trust include the following: C3educSipfe PerOccuence Premium. Credt-.: Credit . Amount-: Net beposlt ' Premiurci..' 250 1.50 %0 5 003 291 693 500 2.50% 8,338 1 288,358 1,000 4.00% 13,340 283,356 2,500 7.00% 23,346 273,350 5,000 10.50% 35,018 261,678 10,000 14.50% 48,359 248,337 25,000 22.00% 73,372 223,324 50,000 28.00% 93,383 1 203,313 Last year, the City selected a $10,000 per occurrence deductible and by doing so for 2012, we would receive a $48,359 credit in our premium. 2. Non - Smoker Credit for Police and Firefighters The LMCIT also offers a 10% rate credit for non - smoking police and firefighters. To qualify for the credit, the City must obtain written statements of non - smoking from at least 90% of the members of the department. The statement must be signed and dated, and must state that the individual does not smoke and has not smoked within the premiums six months. LMCIT gives this discount because several of the diseases presumed by statute to be job - related for firefighters and police officers - various heart diseases, lung diseases, and cancers - are also related to smoking. Fire or police departments with very few smokers represent a lower risk for claims for heart disease, lung disease, or cancer. The City surveyed the police and fire department personnel. This year, 92% of police are non- smokers and 80% of the firefighters are non - smokers. Therefore, police qualified and received a 10% discount in their rate. Human Resources has implemented a policy of not hiring smokers in the Public Safety (police and fire) Department and will look into offering an incentive "quit smoking" programs to reduce the number of smokers within the police and fire departments with the hopes that the Fire Department will qualify for the non - smoker discount in the future. The number of non- smokers in the Fire Department has gotten better since last year when it was 74 %. 3. Retrospective Ratinq Option Under the LMCIT's retrospective- rating option, the City's final premium cost reflects its own, actual loss experience for the year. Retro rating is a form of risk retention. With good experience, a retro can save the City significant money during the long run. Of course, the City is also subject to possible premium increases if it experiences a lot of injuries or a single big loss. Cities that select a retro option pay a deposit premium at the beginning of the agreement period. Six months after the end of the agreement year, the City's premium is adjusted up or down based upon the City's actual incurred losses for that year. That adjustment is repeated annually until all claim activity ceases permanently. This includes activity on claims that reopen and claims for injuries that are filed later for an accident occurring within the retro year. Summary For the 2012 policy period, the 1.10 experience modifier increased the premium $30,319. Selecting a $10,000 per occurrence medical deductible will provide a 14.50% or a $48,359 premium credit, for a total premium for the 2012 -13 policy period totaling $244,306. Manual Premium 294,888 Experience Modification - 1.10 30,319 Standard Premium 333,509 Premium Discount (36,813) Net Premium 296,696 Deductible Option ($10,000 per occurrence) (48,359) Premium $248,337 The City budgeted $333,500 for workers compensation insurance coverage in the 2012 Self - Insurance Fund Budget for insurance expenses. Recommendation Staff recommends the Council authorize the purchase of workers compensation insurance from the League of Minnesota Cities Insurance Trust (LMCIT) in the amount of $248,337 with a $10,000 per occurrence medical deductible and 14.5% premium credit. /cs The quotations received from the League follows: