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Home My WebLink About11 Insurance Renewal Workers Comp Agenda Item # I I Public ACTION To: Board of Directors From: Bob Mescher Date: June 16, 2010 Subject: Consideration of the Award of the 2010-2011 Workers' Compensation Insurance Renewal 1. WHY THIS MATTER IS BEFORE THE BOARD Board approval is required for expenditures of more than $15,000. 2. HISTORY California employers are required to purchase workers' compensation insurance for its employees. The District's current workers' compensation insurance policy, provided by United States Fire Insurance Company, expires July 1, 2010. 3. NEW INFORMATION Keith Grand of Marsh Risk and Insurance Services was asked to solicit proposals from other insurance carriers to cover the District's workers compensation requirement. Mr. Grand was able to obtain two proposals (Attachment 1) based on estimated payroll for the policy period. Mr. Grand has recommended that the District renew its insurance with the current provider, United States Fire Insurance Company. Their proposal is considerably less than the other quote from Chartis (formerly AIG). Please refer to the attached letter from Mr. Grand for his comments (Attachment 2). In that attached letter, Mr. Grand has also recommended that the workers' compensation policy term be shortened by one month, to expire on June 1, 2011 to run concurrent with the rest of the District's insurance policies. 4. FISCAL IMPACT The approved FY10 and FY11 budgets adequately provide for the proposed $214,817 renewal quote from United States Fire Insurance Company. The renewal quote is 16% higher than our expiring policy, but is still 3% lower than the average annualized expense for FY09. 5. RECOMMENDATION Approve the renewal of the District's workers' compensation insurance policy for the period beginning July 1, 2010 and ending June 1, 2011 with United States Fire Insurance Company for an estimated amount of $214,817. k—�0140CMCA,6-,= ^. />. Mary Cha n Michael D. Holley Administrative Services Manager General Manager Attachment 1 Truckee Donner Public Utility District Workers'Compensation Employers Liability Quotation Comparison National Union United States Fire United States Fire .................... ........... ............ ........ ......... ..................... ..... ................ ......... .......... .......... ........ ......... ....................... .. ........ ..................... ................ .... .......... ........... ........... ......... Fire Insurance Insurance Insurance Company Company Company. Chards New Current Admitted/NonAdmitted Admitted Admitted Admitted A. M. Best Rating A XV A XIV A XIII (Last Yr) Policy Limits Excess Workers' Compensation STATUTORY STATUTORY STATUTORY Excess Em to er's Liability $ 1,000,000 $ 1,000,000 $ 1,000,000 Class Codes & Estimated Annual Payroll', 7520 -Waterworks $ 992,900 $ 992,900 $ 1,100,000 8742-Outside Sales $ 1,370,000 $ 1,559,416 $ 1,370,000 8810- Clerical $ 1,510,000 $ 1,169,438 $ 1,510,000 7539- Electrical $ 1,850,000 $ 1,644,005 $ 1,850,000 Basis- Estimated Total Annual Payroll $ 5,722,900 $ 5,365,759 $ 5,830,000 Rate:- er$100 of Payroll: 7520 -Waterworks $ 8.02 $ 5.87 $ 5.87 8742- Outside Sales $ 0.91 $ 0.77 $ 0.77 8810- Clerical $ 0.76 $ 0.64 $ 0.64 7539- Electrical $ 4.36 $ 3.44 $ 3.44 Standard Premium 7520 -Waterworks $ 79,631 $ 58,283 $ 64,570 8742- Outside Sales $ 12,467 $ 12,008 $ 10,549 8810- Clerical $ 11,476 $ 7,484 $ 9,664 7539- Electrical $ 80,660 $ 56,554 $ 63,640 Standard Premium $ 184,234 $ 134,329 $ 148,423 ..:...............:...... ..::.::. Ex:: [ ceQ. l : c: :. ... ew:::. 8.: 1d :::::.::...:....:..:::::::: $ 106,856 $ 77,911 $ 56,401 Subtotal $ 291,090 $ 212,240 $ 204,824 Other Expenses and Credits Schedule Rating 0.00% 0.00% -7.00% Premium Discount -10.70% -4.30% -3.72% Expense Constant N/A N/A N/A Terrorism 1.90% 0.75% 0.87% Catastrophe Other than Terrorism 0.00% 0.00% 0.00% Other Ex enses and Credits :...::..: ..:.. $ $ $ 14,337 Premium Discount $ 31,147 $ 9,126 $ 7,620 Expense Constant $ 230 $ 250 $ 190 Terrorism $ 5,527 $ 1,583 $ 1,792 .Catastrophe Other than Terrorism $ - $ - $ - Subtotal $ 265,700 $ 204,947 $ 184,849 State Mandated Fees $ California Insurance Guarantee Association $ 5,314 $ 4,099 $ 3,697 California User Fund/Admin Revolving Fund $ 4,030 $ 3,108 $ 2,511 California Uninsured Employer Benefit Trust $ 491 $ 378 $ 414 California Subsequent Injuries Benefit Trust $ 279 $ 215 $ 153 California OSHA Assessment $ 814 $ 628 $ 219 California Fraud Investigation Surcharge $ 1,059 $ 816 $ 731 California Labor Enforcement Compliance Fund $ 511 $ 393 $ - .. . . ....... ......... .......... . ........ .. ....... ......... ....... .. . . TOTAL PREMIUM INCLUDING TAX/SURCHARG $ 278,198 $ 214,584 $ 192,574 Policy Term 11 months 11 months 11.5 months Monthly Cost 25,291 19,508 16,746 Attachment 2 Keith Grand Vice President Marsh Risk&Insurance Services MARSH 345 California Street,Suite 1300 San Francisco,CA 94104-2679 MARS11 MCRCI=R KROLL California Insurance License#0437153 . GUY CARPENTER OLIVER WYMAN 415 743 7571 Keith.Grand@marsh.com www.marsh.com Robert Mescher Finance and Accounting Manager Truckee Donner Public Utility District 11570 Donner Pass Road, PO Box 309 Truckee, CA 96160 June 08, 2010 Subject: TDPUD Workers' Compensation Insurance Renewal 7-1-10 Dear Bob: Marsh is recommending that renewal of the District's workers' compensation insurance be continued with US Fire Insurance Company effective 7-1-10. US Fire is a member of the Crum & Forster Insurance Group and is rated A (Excellent) by AM Best Company. US Fire is currently providing loss control and claims services intended to minimize your overall cost of risk and is very interested in contributing to the effectiveness of your loss prevention efforts going forward. In anticipation of an increased premium for the 7-1-10 renewal, based on an increased experience modification factor (explained below), we did extensive marketing of your renewal to a number of insurers, in addition to working with the incumbent US Fire. Of the thirteen insurers contacted, only two offered quotations: US Fire and Chartis. Because the US Fire quote was considerably less than Chartis, we focused on perfecting the US Fire quote. There are several points to note with respect to this renewal, all having an impact on premium cost: • experience modification (ex mod) —this is a measure of an employer's claims experience compared to the average of all employers in California who share the same work classification codes. The District's experience modification, as calculated by the California Workers' Compensation Insurance Rating Bureau (WCIRB), increased from 1.38 to 1.58, which is a 58% surcharge over the average premium for all employers with the same work classifications. • expected loss rate—this is a factor in the WCIRB experience rating form, calculated from the statewide average of losses of all employers who share your work classifications codes, and has a direct impact in calculating your MARSH MARSIA MERCER KROLL ............. GUY CARPENTER OLIVER WYMAN Page 2 June 08,2010 Robert Mescher Truckee Donner Public Utility District experience modification. The California average expected loss rates decreased from last year, while the District's expected losses increased, exacerbating the increase of your ex mod. • schedule rating --this is a rating factor determined by each insurer, which reflects their underwriting judgment of how an account's operations may impact their ultimate loss experience. It can be a credit (premium discount) or debit (premium surcharge), For the 09-10 year, US Fire applied a 7% schedule credit; for the 10-11 renewal, they are deleting the credit and not applying either a credit or debit to renewal pricing. Their reasoning is that their loss development modeling of current claims indicates that their pricing last year was a little thin. • rates and payrolls --the initial premium calculation, before application of ex mods or schedule rating, is simply a calculation of rates per $100 of payroll. For renewal, US Fire's rates are exactly as expiring, while the total estimated District renewal payrolls are increased 2% from current 09--10. While this would suggest a slight increase in premium, the actual payroll distribution by work classification produces a 2% reduction in renewal premium. Renewal Term The current workers' compensation policy has an expiration date of 7-1--10, while the balance of the District's insurance program has an expiration date of 6-1-11. We are recommending your workers' compensation policy be renewed on a short-term basis, from 7-1-10 to 6--1-11, for the following reasons: • one Board meeting —with concurrent dates for all policies, your entire insurance program can be handled at one Board meeting concurrency of term —there is a small risk of a potential coverage gap between your umbrella liability policy coverage and the Employers' Liability coverage on your workers' compensation policy, when these two policies are not concurrent in term. Concurrent policy terms eliminates this potential gap. • reduced premium impact W-by renewing workers' compensation coverage for eleven months, the premium amount payable for that term is reduced 7% from an annual term, a benefit when facing a premium increase stemming from the factors described above. MARSH MARSH WIERCER KROLL GUY CARPENTL•R OLIVER WYMAN Page 3 June 08, 2010 Robert Mescher Truckee Donner Public Utility District We appreciate the opportunity to provide the District with a quotation for renewal of your workers' compensation insurance and would be happy to discuss any questions. Best regards, Keith Grand Vice President