Title
Excess Workers Compensation Insurance Program Renewal (B)
Explanation
The City of Gainesville markets its insurance program on an annual basis through its broker, Arthur J. Gallagher & Co. The most recent renewal of the program produced a $673,302 net decrease in premiums across all lines of coverage compared to current year costs. This translates to an overall premium reduction of 20%, as indicated in Exhibit A, Insurance Program Summary.
During this most recent renewal process, the City Commission directed staff to allow Public Risk Insurance Agency (PRIA) to submit a proposal for excess workers compensation insurance coverage, in addition to those programs marketed through Arthur J. Gallagher & Co. Currently the City utilizes a modified self-insurance program to protect itself against claims arising under the Florida Workers Compensation Statute. This program includes both a self-insured and insured layer. Under this program, the City purchases excess workers compensation insurance that pays claims that exceed the self-insured retention (SIR). During the policy year ended September 30, 2005, the SIRs were $500,000 for police, fire and utility employees, and $400,000 for all other employees.
As a result of this approach, the City received a quote, through Arthur J. Gallagher, from the Preferred Governmental Insurance Trust (PGIT), a product marketed by PRIA, in addition to quotes from two insurance carriers. These quotes are summarized in Exhibit B, Excess Workers Compensation Fiscal Year 2006 Renewal Options and Quotes. The lowest quoted premium, before considering SIRs, was a no aggregate product from Safety National. While this quote was lower ($725,000 vs $797,320) the lower SIR associated with the PGIT program ($350,000 vs $500,000) on the City's higher exposure employees (police, fire and utilities) results in a lower projected overall cost to the City, in that the premium savings ($72,320) associated with the Safety National bid could be lost if a single claim exceeds the difference in the SIRs of the two programs.
For example in the PGIT program, the carrier begins to pay claims once the claim exceeds $350,000. Under the Safety National quote, the City would continue to self-insure (pay claims) up to the $500,000 SIR. The $150,000 incremental cost associated with the highest SIR is more than twice the savings associated with the lowest premium quote. The City's loss history suggests that at least one claim during the policy period will exceed the $350,000 SIR over the life of the claim. If the City were to set aside the savings associated with the reduced premium, at the City's estimated interest earnings rate, it would take almost 20 years for that premium difference to equal the additional cost if one claim exceeded the $350,000 SIR up to the $500,000 SIR associated with the lowest premium bid. Based on this analysis, the PGIT program will offer a lower ultimate cost to the City by reducing the City's exposure to large claims.
Should the City purchase the workers compensation excess insurance through the PGIT program, the City will be required to become a member of the Trust by executing a participation agreement with the Trust. Staff recommends that the City agree to join the Trust so the purchase of the workers compensation excess coverage can occur. Copies of the Participation Agreement and Interlocal Agreement creating the Preferred Governmental Insurance Trust are included in the backup.
Fiscal Impact
The funds of $797,320 to purchase the workers compensation excess coverage have been included in the General Insurance Fund's budget for Fiscal Year 2006.
Recommendation
The City Commission: 1) approve the selection of the Preferred Governmental Insurance Trust as the provider of workers compensation excess coverage; 2) authorize the payment of the requisite premium of $797,320; and 3) authorize the City Manager or designee to execute the Participation Agreement, and any other documents necessary to obtain the workers compensation excess coverage provided by the referred Governmental Insurance Trust, subject to approval by the City Attorney as to form and legality.