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City Council Regular
Meeting Date: 01/15/2019  
Subject:    Approve 2019 Workers Compensation Coverage
From: Sharon Legg, Finance Director

The City has been carrying worker’s compensation coverage through the League of Minnesota Cities Insurance Trust (LMCIT) which is now up for renewal for the period January 1, 2019 through December 31, 2019.
Worker’s compensation insurance covers City employees injured on the job, paying lost time and medical bills. The premium is based on wages with unique rates charged to each worker classification like clerical, police, fire, street, etc. Higher rates are charged to the worker classifications with the highest risk of injury. Although the rates per classification of worker change from year to year, the overall rate increase was about one percent for 2019. 

The premium gets adjusted by the experience modification factor. This can either increase or decrease the premium. The experience modification factor for the City is .74 for the upcoming policy year, down from .83 from the previous year.  This factor is an indication of what the City’s past experience has been.  The lower the factor, the lower the City’s worker’s compensation premium.  The experience modification factor is based on expected losses for the payrolls compared to actual claims paid over the three years prior to the current year (2015, 2016 and 2017).  Fortunately, the number of claims that the City incurred, has significantly decreased, including in 2018. This extemely good experience modification factor is a reflection of the low number of claims and significantly saves the City premiums.

There are a number of alternatives to the City for this coverage.  The City could choose to buy the regular premium option at $575,391 or one of three retro-rated plans.  Since 1988, the City has chosen one of the retro-rated plans whereby the standard premium was discounted.  Under this type of plan, claims paid on behalf of the City are added to the minimum premium up to a maximum.  The City risks paying a higher premium in order to hopefully save premium dollars.  There is very much an incentive for the City to manage worker’s compensation claims. 

The regular premium option for 2019 as compared to 2018 is as follows:  
  2018 2019
Manual Premium $832,802 $ 879,328
Experience Modification .83 .74
Standard Premium 691,226 650,703
Premium Discount -80,337 -75,312
Net Deposit Premium $610,889 $575,391


For the upcoming policy year, the following three options of the retro-rated plan have been offered to the City:
Retro-Rated Options
Standard Premium

Minimum Factor

Minimum Premium

Maximum Factor

Maximum Premium
1) $650,703 .263 $  171,135 1.3 $    845,914
2) $650,703 .219 $  142,504 1.5 $  976,054
3) $650,703 .154 $  100,208 2.0 $   1,301,406
The recommendation for 2019 includes a potential savings of $475,183 versus the potential additional costs of $726,015 for selecting Option 3. Due to the high claims costs in a couple of years, the City has seen a savings of $1,035,679 since the city began using the retro plan.  This is measured as of July 31, 2018 by opting for the retro plan.   See the attachment for the savings by year.  Beginning with 2004, the City has opted for retro-rated Option 3, after selecting Option 2 since 1999.
Staff recommends Option 3 of the retro-rated plans with the League of Minnesota Cities Insurance Trust be approved.

Retro Plan Summary

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