Sparks City Council Meeting 6/13/2016 2:00:00 PM

    Monday, June 13, 2016 2:00 PM
    Council Chambers, Legislative Building 745 Fourth Street, Sparks, NV

General Business: 9.6

Title: Consideration and possible approval to purchase an excess insurance policy for workers’ compensation for the policy period 7/1/2016 to 6/30/2017 in the amount of $88,617 and authorization for the Contracts and Risk Manager to execute agreements for the policy.
Petitioner/Presenter: Neil C. Krutz, Assistant City Manager/Jill Valdez, Human Resources Analyst
Recommendation: Recommend approval to purchase the excess insurance policy for workers compensation to protect the financial interests of the City of Sparks for the next policy period.
Financial Impact: This is a budgeted expense.
Total Costs: $88,617.00
Fund: Worker's Comp Self-Insurance    Account: 603065
Program: Provider Contracts in WKC Ins Fund (050420)
Amount: $88,617.00    Budget Status: Over Budget (See Budget Correction Plan)
Business Impact (Per NRS 237):
    
A Business Impact Statement is not required because this is not a rule.
Agenda Item Brief:

While the primary layer of risk exposure in the workers compensation program is self-insured, the City purchases an excess insurance policy for two reasons.  First, it is a requirement under Nevada law to carry excess coverage in order to have a self-funded workers’ compensation program.  Second, the policy protects the financial interests of the City against unpredictable, catastrophic losses.  This agenda item authorizes the Contracts and Risk Manager to execute the necessary paperwork associated with this policy.

Although there is a slight increase in the estimated cost of the policy for fiscal year 2017, it is related to estimated payroll increases, not to an increase in the insurance rate.  The insurance rate in the policy quote remains flat from the current policy period of 7/1/2015 to 6/30/2016.



Background:

The City self funds loss exposures that are predictable, where it is not cost effective to purchase commercial insurance, and where losses do not threaten its financial stability.  Risks, such as catastrophic losses that present significant exposure to the City’s financial stability and are somewhat unpredictable lend themselves to commercially insurance coverage.

The specific line of insurance covered here is the excess insurance policy for workers’ compensation.  With the assistance of its broker (Wells Fargo Insurance Services, USA), Administrative Services has marketed the coverage with an eye on value (broadest coverage for the most competitive premium).



Analysis:

The City continues to work to control losses and limit exposure in the workers compensation self-funded program by working closely with internal departments and meeting monthly with the third party administrator of claims and the managed care organization.  The goals is to mitigate claims and risk as efficiently and cost effectively as possible.  The Wellness program is also aimed at reducing risk factors that lead to these types of claims.  In marketing the City excess insurance policy this year as with past years, staff was challenged with increasing Self Insured Retention levels for Police and Fire, which has been steadily increasing across the board for public entities in Nevada.

There is an extremely limited market for companies willing to offer excess insurance for workers’ compensation programs that include Police and Fire in Nevada due to the presumptive benefits (Heart/Lung/Cancer/Hep C) mandated by state law.  A spreadsheet detailing the policies is attached.  In summary, premium changes from the previous policy period are as follows:

Premium:            Estimated Increase of $ 2,983.  This is due to an estimated increase in payroll costs.  The actual rate for the insurance per unit of payroll did not increase.

Self-Insured Retention: No change this year; the rate for police and fire claims is still 3 million dollars per occurrence.  The Self-Insured Retention for all other employees remains at 1.5 million dollars.

The total estimated premium depicted on the attached spreadsheet may be adjusted upward or downward, depending on variations in actual exposures throughout the course of the policy year.

Coverage Changes

Self-Insured Retention:

The Self-Insured Retention levels offered did not change this year from the last policy year.  This is good for the City because the trend has been steady increases in rates or self-insured retention rates for entities with Police/Fire personnel.  This has risen over past years in response to the risk exposure from Nevada law that mandates presumptive coverage of heart disease, lung disease, and certain cancers and communicable diseases.  There are a number of factors impacting the rising costs of this legislatively mandated coverage.  Medical inflation, average monthly wage inflation, legal provision for scheduled annual increases in wage compensation, and expanded benefit coverage by legislative changes and Supreme Court case law all influence the claims liability for the City and the excess insurance carrier.

In the last legislative session, there was a change to the presumptive coverage that appears to have positively affected the City’s risk exposure.  This is reflected in the flat rate and flat self-insured retention in the quote for this policy year.



Alternatives:
  1. The City Council may approve the item as recommended.
  2. The City Council may reject the recommendation of staff.
  3. The City Council may choose not to approve the purchase of insurance policies for 2017, but direct the City Manager further.


Recommended Motion:

I move to approve the purchase of an excess insurance policy for workers’ compensation for the policy period 7/1/2016 to 6/30/2017 in the amount of $88,617 and authorize the Contracts and Risk Manager to execute agreements for the policy.



Attached Files:
     City of Sparks - Excess Workers Comp Payroll & Premium History 16-17.pdf
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