Excess insurance is purchased to protect the worker’s compensation program against adverse, catastrophic claims experiences.   The City’s broker, USI marketed the coverage with an eye on value (broadest coverage for the most competitive premium) in a difficult insurance market.

The City continues to work to control losses and limit exposure in the workers compensation self-funded program.  But, there is always the potential for large loss claims.  Therefore, excess insurance is an important protection for the worker’s compensation program.

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.  This year, the excess carrier who has covered the City’s worker’s compensation excess policy from inception of the City’s self-insurance program declined to quote.  They made a business decision to limit their exposure to Police/Fire high risk presumptive benefit claims in Nevada.  However, the City did receive two other bids this year.  The two bids are very similar, and both are higher than the cost of the premium from this fiscal year.  Bid one offers the smaller premium of the two, and it is from New York Marine with a total estimated premium amount of $92,509.  The second bid is from Safety National with a total estimated premium amount of $108,565.  The key difference between the two bids is that New York Marine’s AM Best Rating was downgraded on 10/06/2017 to an A-.  While this may not sound significant, there is concern when a company reaches a B rating, and the recent downgrade is concerning.  The excess policy for worker’s compensation has what is called a long tail.  What that means is that the policy the Council selects for this 1 year policy period continues to pay losses into the future for as much as 30-50 years.  Therefore, the financial solvency of the insurer matters a great deal.  If the insurer becomes insolvent, the City would be liable to pay out on the losses so that the injured workers have no interruption in benefits.  This has already happened in Nevada when an excess insurance company called Reliant became insolvent.  The Nevada Supreme Court determined that the self-insured employers were responsible for the continued liabilities due to Reliance National Insurance Company’s inability to pay.  In light of this, the staff recommends Safety National’s excess policy because Safety National has a long, stable history and a “Superior” A+ rating.

Safety National is the longest running consecutive provider of Excess Workers’ Compensation in the US, having consistently provided coverage since 1942.  In 2018, the company’s AM Best Rating was increased to A+ XV (the highest possible rating for insurance companies in strength and size).  With nearly 40% of the Excess WC market share in the US, Safety National insures nearly 10% of the US workforce in some capacity.  Their financial strength and longevity in the market is Safety National’s uniquely strong value proposition given the propensity for Excess WC carriers to eventually and almost inevitably face financial difficulties.  This is because of the challenging nature of the business: long-tail claims in highly regulated and inflationary environment.

A spreadsheet showing the premium history for the City’s workers compensation excess policies attached. In summary, premium changes from the previous policy period to the recommended policy for Fiscal Year 2019 are as follows:

Premium:            Estimated Increase of $ 16,660 under the Safety National policy. This is due to a combination of estimated increase in payroll costs and an 8% increase in the cost of the coverage.

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

The total estimated premium 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 the self-insured retention rates for entities with Police/Fire personnel.  The increases over past years are in response to the risk exposure from Nevada laws that mandate presumptive coverage of heart disease, lung disease, and certain cancers and communicable diseases.  There are many 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 case law all influence the claims liability for the City and the excess insurance carrier.

1. The City Council may approve staff’s recommendation to purchase the excess insurance policy with Safety National for the City’s self-insured worker’s compensation program.
2. The City Council may direct the City Manager to purchase the excess insurance policy with New York Marine for the City’s self-insured worker’s compensation program.
3. The City Council may reject both bids.
4. The City Council may choose not to approve the purchase of insurance policies for Fiscal Year 2019 but direct the City Manager further.

I move to approve purchase of the excess insurance policy with Safety National for the City’s self-funded workers’ compensation program for Fiscal Year 2019 in the amount of $108,565 and authorize the Contracts and Risk Manager to execute policy documents.