HomeMy WebLinkAbout2013-04-03 PACKET 04.D.REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA
MEETING ITEM #
DATE 4/3/2013 .
.
PREPARED BY: City Clerk Caron Stransky
ORIGINATING DEPARTMENT DEPARTMENT HEAD
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COUNCIL ACTION REQUEST:
Consider authorizing the purchase of Workers Compensation Insurance Coverage through the
League of Minnesota Cities Insurance Trust in the amount of $240,390.
STAFF RECOMMENDATIO
Authorize the purchase. The premium includes a$6,541 reduction due to the reduction in our
experience modifier, a premium discount totaling $35,268, and a$10,000 per occurrence
medical deductible or 14.5% premium credit totaling $44,874.
SUPPORTING DOCUMENTS
� MEMO/LETTER: Memo from Caron Stransky.
❑ RESOLUTION:
❑ ORDINANCE:
❑ ENGINEERING RECOMMENDATION:
❑ LEGAL RECOMMENDATION:
❑ OTHER:
ADMINISTRATORS COMMENTS
- � 4�, ,
Date
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COUNCIL ACTION TAKEN: ❑ APPROVED ❑ DENIED ❑ OTHER
Document2
Cottage
/ Grove
� Pride and Pr°SPerity Meet
To:
From:
Date:
Subject:
Ryan Schroeder, City Administrator
Honorable Mayor and City Council Members
Caron Stransky, City Clerk
March 27, 2013
Workers Compensation Coverage
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 4/03/2013
to 4/03/2014 policy period.
The LMCIT offers its members a number of premium options.
Regular 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 2013 premium.
� � ° ' � 2013 �• Rate Per � 2023 �
Payroll Descr��tton r Code � $100 00 �
� ��� � Payroll ; � �Prem�urri�:
, �
of , ayro„ I
,�. �.�,..� �,,..: �.-, ," :... .,;,�.:.. ..., �. �.,
STREET & ROAD 5506 602,000 8.14 49,003
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 (Not 7380 300,000 5.17 15,510
Volunteer) - Applies to
ambulance drivers and
paramedics.
WATERWORKS - Applies to 7520 350,000 4.15 14,525
employees working in the
City water plant and
includes incidental line
repair (not line
construction) and meter
readers.
FIREFIGHTERS (Not 7706 250,000 6.65 16,625
Volunteer) - Applies to full-
time firefighters.
Paproll Descnp#fon Coc]e � 2Q13 Rate/ � 201.3 ;
, � � Payroli � $�.Q� 00 Pre�n�um ,
of Payroil. , �
FIREFIGHTERS (Volunteer) 7708 30,089 153.91 46,310
- Applies to City's part-time population
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. (87'Yo
of employees are non-
smokers.}
POLICE-NONSMOKER - 7721 3,300,000 3.22 106,26
Applies to the City's police p
department and qualifies
for 10% non-smoker credit;
90% required. (93% of
employees are non-
smokers)
POLICE RESERVES - 7722 63,000 2.20 1,386
Reserve officers will
augment and assist sworn
officers, and perform
limited law enforcement
duties not requiring the
assignment of sworn
officers.
CIN SHOP & YARD - 8227 200,000 4.11 8,220
Applies to employees
invoived with shop and
yard work doing
maintenance on City
vehicles and equipment.
CLERICAL - Applies to 8810 1,700,000 .67 11,390
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 585,000 2.34 13,689
Applies to employees at the
City golf course/clubhouse.
PARKS - Applies to 9102 880,000 3.75 33,000
employees in the City's
park system.
CINARENA-OPERATIONS - 9182 250,000 2.23 5,575
Applies to employees
working at the Ice Arena,
including concession stand
workers.
MUNICIPAL EMPLOYEES 9410 780,000 .69 5,382
Overall, the manual workers compensation premium increased from $303,190 in 2012 to $327,073 in
2013. In many of the categories above, the premium increased or decreased due to changes in payrolls
and/or in the classification rates per $100.00 of payroll.
Experience Modifier
The manual premium ($327,073) 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, then we are "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 2009, 2010 and 2011.
For this three-year period, there were 63 claims totaling $743,626.62 and broken down as follows:
• 2009 - 24 claims totaling $441,578.42
• 2010 - 18 claims totaling $277,776.18
• 2011 - 18 claims totaling $24,272.02
As you can see, the amount paid in the three year period dropped significantly in 2011. For the 2012 policy
period, we have had 15 claims totaling $49,781.62 to date, another drop. If this does not dramatically
increase, we should see another decrease in our experience modifier because the claims in 2009 will drop
off.
This year our experience modifier dropped from 1.10 to .98. The .98 modifier decreased our premium by
$6,541 for the 2013 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. Again, the great news is that
for the 2013 policy period it dropped from 1.10 to .98.
Workers Compensation �xperience Modification
2�95 - 2010 Policy Periods
1.3
1.2
1.1
1
, 0.9
' 0.8
0.7
0.6
�tions:
The LMCIT 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 rangingfrom a$250 deductible with a
1.50% premium credit to a$50,000 deductible with a 27.50% premium credit.
The deductible premium options quoted by the League of Minnesota Cities Insurance Trust include the
following:
Last year, the City selected a$10,000 per occurrence deductible and by doing so again in 2013 we would
receive a$44,874 credit in our premium.
rn rn m o 0 0 0 0 �-�i �
a�, , m � � o o a o o �
Comparing the savings in premium by selecting the $10,000 medical deductible, we saved $34,675.36 for
the three-year period of 2009-2011. In 2011, we saved $49,541 in premium but paid $36,619 in medical
deductible (a $12,822 savings); in 2010, we saved $52,597 in premium but paid $17,087.79 in medical
deductible (a $35,509.21 savings); and in 2009, we saved $54,601 in premium but paid $68,256.85 in
medical deductible (a $13,655.85 expenditure).
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 last 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, 93% of police are non-smokers and
87% of the firefighters are non-smokers. Therefore, police qualified and received a 10% discount in their
rate. We have implemented a policy of not hiring smokers in the Public Safety (police and fire) Department
and I believe over time this will reduce the number of smokers in the Department.
3. Retrospective Rating 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.
The quotations received from the League follows:
Summarv
For the 2013 policy period, the .98 experience modifier decreased our premium by $6,541. Selecting a
$10,000 per occurrence medical deductible would provide a 14.50% or a$44,874 premium credit, for a
total premium for the 2013-14 policy period totaling $240,390.
Manual Premium 327,073
Experience Modification - 0.98 (6,541)
Standard Premium 320.532
Premium Discount (35,268)
Net Premium 285.264
Deductible Option ($10,000 per occurrence) (44,874)
Premium 240 390
The City budgeted $272,100 for workers compensation insurance coverage in the 2013 Self-Insurance Fund
Budget for insurance expenses. The amount budgeted in excess of the premium will be needed to cover the
potential medical deductible costs associated with each claim.
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 $240,390 which includes a$6,541 reduction
in our premium due to the reduction in our experience modifier, a premium discount totaling $35,268, and a
$10,000 per occurrence medical deductible or 14.5% premium credit totaling $44,874.
/cs