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Home My WebLink About2015-04-01 PACKET 04.B. REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA MEETING ITEM # DATE 4/1/201 � � PREPARED BY: City Clerk Caron Stransky ORIGINATING DEPARTMENT DEPARTMENT HEAD *�************************�*��**************�*� COUNCIL ACTION REQUEST Consider authorizing the purchase of workers compensation insurance from the League of Minnesota Cities Insurance Trust in the amount of $358,826.00, which includes a credit for our experience modifier, a premium discount, and a$10,000.00 per occurrence medical deductible. STAFF RECOMMENDATION Approve the request. SUPPORTING DOCUMENTS � MEMO/LETTER: Memo from Caron Stransky 3/6/2015 ❑ RESOLUTION: ❑ ORDINANCE: ❑ ENGINEERING RECOMMENDATION: ❑ LEGAL RECOMMENDATION: ❑ OTHER: ADMINISTRATORS COMMENTS ; � -, ��S` � ��. ' ity Administrator Date *******��**�**:�*��******************�**�******* �c��t�t� e r�� ep� Pride ar►�p��'��rity Ff��f To: Ryan Schroeder, City Administrator Honorable Mayor and City Council Members From: Caron Stransky, City Clerk Date: March 6, 2015 Subject: 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 4/03/2015 to 4/03/2016 policy period. The LMCIT offers its members a number of premium options. They are: Repular Premium Option The regular premium option calculates the City's premium based on the City's payroll times the classification rate per $100.00 payroll. Rates vary from a high of $9.40 per $100 of payroll for street construction employees to a low of $.77 per $100 of payroll for clerical employees. The workers compensation manual premium option increased from $271,167 in 2014 to $435,957 in 2015, due to payroll and classifications rate changes. Experience Modifier The $435,957 manual premium is then adjusted by an experience modifier. An experience modifier is a term used in the American insurance industry and more specifically in workers' compensation insurance. It is a credit or debit factor based on your loss and payroll history. If the experience is worse than expected, you are "punished" with a high modifier (more than a 1.0) and this goes against your premium. However, if your experience modifier is better, then you are "rewarded" with a lower modifier (less than a 1.0) and you pay less in premium dollars. In determining the experience modifier, claims in the oldest three 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 2011, 2012 and 2013. For this three-year period, there were 63 claims totaling $565,805.55 in medical, indemnity, and expenses: • 2011 — 15 claims: 50,780.22 • 2012 — 25 claims: 167,674.45 • 2013 — 23 claims: 347,350.88 Total: $ 565,805.55 The expenses for this three-year period increased from $305,435 for the years 2010, 2011 and 2012 to $565,806 for the years 2011, 2012 and 2013, an increase of $260,371. The bad news is our experience modifier increased from .80 in 2014 to 1.08 for 2015. The increase in the modifier means our premium will increase from our manual premium of $380,664 in 2014 to $435,957 in � City for Cottage Grove 2 Workers Compensation Coverage 2015, an increase in our manual premium by $55,293. The following chart shows the modifier covering the policy periods 1995 through 2015. As you can see, the modifier has gone up and down over the years. Workers Compensation Experience Modification 1995 - 2015 1.30 � .2� 1.1 1.18 1.12 1.10 1.04 1.10 � 1.08 1.02 1.01 1.00 0.92 0.9 .96 0.96 0.90 0.90 0.91 0.84 0.80 0.82 �� 0.80 0.79 0.80 �.7� 0.60 � C4 I� 00 � O � N C'7 d" � t0 f� 00 � O c- N C'7 � ln �� O O O O O O O O O O r- r- � � � � d� O� O� O� d� O O O O O O O O O O O O O O O O r r r r r N N N N N N N N N N N N N N N N Deductible Option The League 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 eight deductible options ranging from a$250 with a 1.10% premium credit to a$50,000 deductible with a 26.00% premium credit. The following deductible options were quoted by the League of Minnesota Cities Insurance Trust: � �p,eductible� ��Premiur�n :�' '�redi#. � ��Nett�eposit � Per Qccurrence . Credit Amourif Rremium 250 1.10% 5,179 412,501 500 2.00% 9,417 408,263 1,000 3.40% 16,008 401,672 2,500 6.00% 28,250 389,430 5,000 9.00% 42,375 375,305 10,000 12.50% 58,854 358,826 25,000 20.00% 94,167 323,513 50,000 26.00% 122,417 295,263 City for Cottage Grove � Workers Compensation Coverage By selecting a$10,000 per occurrence deductible again in 2015, the City will receive a 12.50% or a$58,854 premium credit. Non-Smoker Credit for Police and Firefiqhters 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 from at least 90% of the members of the department. The statement must be signed and dated, and must state that the employee 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 these types of claims. , The City surveyed the police and fire department personnel and 90% of the police and fire personnel are non-smokers; therefore, both classifications (police and fire) are receiving a 10% discount in their classification rate. Retrospective Ratinp 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. The City's final premium with a retro is a function of the City's own losses. 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 pays 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 quote received from the League is: �-� � �� - � � � .367% $172,796 1.300% $612,084 .309% 145,488 1.500% 706,251 .224% 105,467 2.000% 941,668 Due to a high number of employee injuries in the three-year period, staff does not recommend selecting this option for 2015. Summarv For the 2015 policy period, the 1.08 experience modifier will increase our premium $34,877. The League will provide a premium discount totaling $53,153. Selecting a$10,000 per occurrence medical deductible will provide a 12.50% or a$58,854 premium credit, for a total premium for the 2015-16 policy period totaling $358,826. City for Cottage Grove 4 Workers Compensation Coverage Manual`Premium 435,957 Experience Modification — 1.08 34,878 Standard Premium 470,835 Premium Discount (53,154) Net Premium 417,681 Deductible Option ($10,000 per occurrence) (58,854) Premium 358 826 The City budgeted $256,300 for workers compensation insurance premium in the 2015 Self-Insurance Fund. The amount budgeted is less than the premium quoted; however the self-insurance fund balance has sufficient funds to cover the added premium. 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 $358,826 which includes a credit for our experience modifier, a premium discount, and a$10,000 per occurrence medical deductible. /cs