HomeMy WebLinkAbout07 - Workers Compensation Excess Insurance Coverage & Cost RenewalCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No.
September 9, 2003
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Human Resources, Lauren Farley, Risk Manager, (949) 644 -3302,
fadey@city.newport-beach.ca.us
SUBJECT: Workers Compensation (WC) Excess Insurance Coverage and Cost
Renewal — Policy Period, 9/1/03 to 9/1/04
ISSUE:
Does the City Council approve the City Manager's binding (purchase) of the excess
workers compensation insurance coverage?
RECOMMENDATION:
City Council approves the renewal of WC Excess Insurance Coverage with the SIR of
$1 million, coverage limits of $100,000,000 and premium of $434,679 for FY 03/04.
DISCUSSION:
Background:
The city purchases excess workers compensation insurance as a risk - financing tool to
protect against catastrophic loss in this area of its benefit obligations. This coverage
has been purchased since September 1,1995. The insurance markets continue to be
very volatile for all local governments for excess workers compensation coverage and
reflect that coverage has become very expensive and limited. In fact, due to the limited
number of markets that will write excess WC coverage to California municipalities our
final renewal quotes were received on 8/29/03 with expiration of our current coverage
on 9/1/03.
Some neighboring agencies in Orange County only received one viable quote for this
coverage while some other agencies in the state of California received no quotes and
now completely self- insure this coverage. The excess workers compensation markets
continue to experience similar repercussions as the general liability markets, such as
tightening of underwriter standards, a fixed coverage limit (previous available limits were
much broader at a statutory level), more exclusions of specific types of coverage, paid
losses exceeding earned premium, catastrophic losses in 2001 and still a loss of
investment income to offset obligations.
Workers Compensation Excess Insurance Renewal
September 9, 2003
Page 2
Page 2
Again, the passing of AB 749, effective this January continues to greatly influence this
market situation. The increasing of benefits to injured workers by approximately 22%
without some measurable reductions in the overall costs of workers compensation
claims will continue to negatively impact this coverage. The League of California Cities
along with the state's public risk management associations are still working diligently to
effect change in clean up legislation to lessen the impact of AB 749 on local
governments. The private sector is also very involved in the on going clean up
legislation effort.
Renewal Quotation:
With this situation in the workers compensation arena, staff was able to obtain various
comparable quotes for council review (Attachment A). Historically, the City has had
very few losses that would reach the SIR level of either the expiring SIR amount of
$500,000 or the new SIR amount of $1,000,000. Those claims that reached the lower
level SIR only did so by relatively small amounts. Given the longer payout of workers'
compensation losses, the City can fund overtime losses between the $500,000 and the
$1,000,000 level without major financial disruption. The City's loss experience indicates
the probability of large losses is relatively small. However, when losses occur in
sufficient size to breach the SIR, the losses have the potential to be of catastrophic
portions. The National Union proposal offers the greater protection while allowing the
workers compensation internal service fund to retain a certain level of risk within its
financial capacity. Therefore, staff recommends the renewal policy from National Union
as outlined below:
Carrier SIR WC & Employers Liability Premium
National Union $1 million $100 million /$1 million $434,679
(AIG) per occurrence for both
Coverages
Funding Availability:
Appropriate funds exist in the budget (# 6010 — 8638) to
Attachments: Attachment A
cover the expenditure.
Subm' d by:
6.
Diana Axley, HR Dire for
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THE CITY OF NEWPORT BEACH
Excess Workers Compensation
Marketing And Cost Comparison Overview
For Policy Years 1998 -2003
Marketing Comparison:
From 1998 through 2001 policy years, we went to a minimum of 6 carriers with
Employers Reinsurance being the most competitive each year. In 2002 we went to 7
carriers, with Employers Reinsurance, Hartford and CSAC quoting, and the other
carriers, AIG, Safety National, Insurance Corporation of Hanover and General
Reinsurance all declining. During the current renewal we went to 6 carriers, with AIG,
Ace and CSAC offering quotes and Wexford /Continental declining, Midwest's quote
was not a viable option and Safety National no longer provides coverage in California.
Cost Comparison:
Policy Year
Carrier
WC Limit
EL Limit
Retention
Premium*
Rate
1998 -1999
Employers
Statutory
$1,000,000
$275,000
$43,625
.1115
Reinsurance
1999— 2000
Employers
Statutory
$1,000,000
$275,000
$49,552
.1115
Reinsurance
2000 -2001
Employers
Statutory
$1,000,000
$275,000
$55,143
.1225
Reinsurance
2001 —2002
Employers
Statutory
$1,000,000
$350,000
$66,660
.1377
Reinsurance
2002 —2003
Employers
$25,000,000
$1,000,000
$500,000
$193,953
.3553
Reinsurance
2003 -2004
AIG
$100,000,000
1 $1,000,000
$1,000,000
1 $434,679
.7827 j
*Premium is developed by applying the rate per $100 of payroll