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/Hepatitis) mandated by state law.  Last year, the excess carrier who had covered the City’s worker’s compensation excess policy from inception of the City’s self-insurance program declined to quote, making a business decision to exit the Nevada market entirely for Police/Fire high risk presumptive benefit claims.

The City did receive a renewal quote from Safety National, the current insurance carrier.  They have offered to maintain the same flat dollar rate of $0.5585 premium per $100 of payroll for 2 years (2 policy periods).  The total estimated premium from last year was $108,565, which was slightly lower only because the payroll was lower. The premium rate per $100 of payroll was the same.

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 Workers’ Compensation 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 is attached. In summary, premium changes from the previous policy period to the recommended policy for Fiscal Year 2020 and 2021 are as follows:

Premium:  Premium rate of $0.5585 per $100 of payroll; No change from prior period.

Self-Insured Retention:  This is the dollar amount where the excess insurance starts to pay on a loss.  The City’s self-insured program will pay until this figure is reached.  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 payroll throughout the course of the policy years.

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.

Although the City could opt for a one-year renewal period, staff recommends the two-year renewal option.  This option maintains a flat premium rate per $100 of payroll with no increase.  The Self-Insured Retention levels also remain stable at the same rate with no increase.

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 elect not to approve staff’s recommendation to purchase the excess insurance policy with Safety National for the City’s self-insured worker’s compensation program.
3. The City Council may choose not to approve the purchase of insurance policies but provide alternative direction to the City Manager.

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 2020 in the amount of $116,978 and Fiscal Year 2021 in the amount of $116,978 and authorize the City Manager to execute policy documents.