Memorandum
City of Lawrence
Administrative Services – Risk Management
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TO: |
Mike Wildgen – City Manager
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FROM: |
Jennifer Harvey – Risk Manager
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CC: |
Frank Reeb – Administrative Services Director David Corliss – Assistant City Manager Debbie Van Saun – Assistant City Manager
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Date: |
12/15/2005
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RE: |
Workers Compensation Excess Insurance Renewals 2006
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Workers Compensation Excess Insurance 2006 Renewal
The Office of Risk Management administers a self-insured, self-administered workers compensation program under the approval of the State of Kansas Division of Workers Compensation and the Department of Insurance. To maintain our program, we are required to purchase excess insurance coverage to protect against catastrophic injury losses in excess of our self-insured retention level (SIR), currently $750,000. Our current insurance coverage with Midwest Employers Casualty Company (MECC) will expire on January 1, 2006. Based upon the information provided below, it is our recommendation to renew coverage with Midwest Employers Casualty Company (MECC) for the policy year 1/1/2006 to 1/1/2007.
Late this fall we began the process of applying for renewal of our coverage for 2006 with MECC. The excess workers compensation insurance market has demonstrated no softening nationally. Due to the limited number of excess workers compensation insurers doing business in the State of Kansas, supply and demand has resulted in relatively flat to slightly increased premiums. A renewal quote was sought from MECC alone as our program was marketed last year to six companies. It is important to note that frequent or annual marketing for a specific line of insurance coverage is not recommended. Insurers become wary of responding and quoting coverage repeatedly with no return.
MECC offered two quotations for 2006 coverage including SIR levels of $750,000 and $600,000. MECC’s quote maintaining our current SIR of $750,000 is the most economical premium at $36,796. This represents a premium increase of 8.51% from $33,909 (2005) to $36,796 (2006). The second option would allow us to reduce our SIR to $600,000. Although this option would reduce our SIR by $150,000 it would increase our premium by 47.51% from $33,909 (2005) to $50,018 (2006).
From a claims history and self-insured retention perspective, only twice in over 10 years have we exceeded our SIR level. The 1999 claim from the serious injury and subsequent death of a Public Works Street Division employee is projected to exceed its SIR of $500,000. The 2001 claim from a serious injury to a Public Works Solid Waste employee exceeded the SIR of $300,000. Should reserves be funded at an appropriate level, maintaining our SIR at $750,000 remains an acceptable risk.
Chart A 2005 Coverage Options
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MECC Option 1 |
MECC Option 2 |
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Self-Insured Retention |
$750,000 |
$600,000 |
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2005 Premium |
$ 33,909 |
$ 33,909 |
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2006 Premium |
$ 36,796 |
$ 50,018 |
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Premium Increase |
$ 2,887 |
$ 16,109 |
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Rate per $100 Payroll |
0.1013 |
0.1377 |
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Percentage Increase |
8.51% |
47.51% |
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Percentage due to Payroll |
6.59% |
6.59% |
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True Percentage Increase |
1.93% |
40.92% |
· It is important to note that payroll growth also contributes to premium increases as premium is a calculated rate per $100 of payroll. The 2006 quotes were based upon an estimated gross payroll of $36,323,726 for 2006 which is a 6.59% increase from 2005 estimated gross payroll figures of $34,079,095. Therefore, 6.59% of the premium increases are the result of payroll growth. Chart A shows the total percentage of increase minus payroll growth as True Percentage Increase.
Workers Compensation Excess Insurance Program Historical Data
Pages three and four of this memo contain graphs and a spreadsheet depicting the history of our excess workers compensation insurance coverage. From 1996 through 2001 the City benefited from a softer insurance market. However, from 1995 to 2005 the City’s gross estimated payroll has increased by 88.6% from $18,076,712 to $34,079,095. We have increased our SIR from $300,000 to $750,000 as a means of stabilizing payroll growth’s impact on overall premium.
Recommendation
We recommend renewing coverage with Midwest Employers Casualty Company (MECC) and maintaining our self-insured retention at $750,000 for the policy year 1/1/2006 to 1/1/2007. Please advise should you have additional questions or if I can provide any additional information. Thank you for your consideration.
