City workers' comp to increase by 44% for 2009

[November 26, 2008]  At Tuesday night's city council meeting, insurance chairman Verl Prather informed the council that insurance premiums for the city's workers' compensation policy will see an increase of $58,000 for the 2009 policy year. This is an increase of 44 percent over last year, Prather and City Clerk Melanie Riggs told the council.

In order to acquire a new policy, insurance applications need to be submitted 90 days in advance of policy expiration. Alderman Verl Prather assured the council that they did indeed start working on this three months ago, but have had no luck in finding anyone who will take over the coverage. With the policy term running from December to December, Riggs said that the city's insurance consultant and the insurance agent have both been working very hard to find a new provider with a more affordable policy premium.

Riggs said that part of the issue is that insurance companies are not writing new policies at all. "No one wants to take on a new municipality or workman's comp," she said. She believes that provider reluctance to add new business may well be related to recent changes in Public Law 95-316 regarding workers' compensation for firefighters and emergency personnel. These changes are resulting in higher risk levels as well as higher premiums.

Insurance can easily be compared to betting on a football game or a horse race. Policy providers are betting that they can sell the consumer a policy they will never need, while the consumer is betting that it will be needed.

Over the past few years, insurance companies have been losing the bet time and time again. Consequently providers are becoming more reluctant to make their bet, and when they do, the cost is quite expensive.

Workers' compensation premiums are determined by factoring together three components. The first two components combined will set the base premium amount.

Before a policy is issued, each employee must be grouped into a risk category. These risk categories are then assigned an insurance premium value.

Risk categories are graded from low to high. For example a secretary in a secure location may be rated as at low risk for having a workers' compensation claim, while a firefighter, for example, is one of the highest rated risks.

The second factor is the gross wage of the employee. Because workers' compensation provides the employee with substitute funds while they are out of work recovering from an injury or work-related illness, the premium must be set with consideration to what those substitute funds could total.

Combining these two bits of information, insurance providers determine a premium rate per $100 of gross wages. In the example of the secretary, the rate per $100 could be only a few cents. However as the risk increases, so does that rate, until the premiums get to the highest level of risk, such as firefighters, police officers and emergency workers. At that point the rate can go to several dollars per $100 of wages.

Once the base rate is set by the first two components, the third factor in determining the premium is the "experience rating."

The insurance provider tracks the claims submitted by the city of Lincoln. Based on the number of claims and the dollars paid out, they assess additional premium in the form of the experience rating.

Riggs and Prather emphasized that there have been a larger number of claims recently, calling it "one of our worst years."

Riggs also stated that for the policy applications and subsequent renewal, the city had to submit an estimated payroll figure. Because the police contract is not yet finalized, an estimate was submitted that might be a bit high. If so, the end result could be a refund of insurance premiums at the end of the policy year.

In the meantime, she assured the council members that the city budget does include funds sufficient to cover the increase.

[By NILA SMITH]

Public Act 095-0316, Section 6, subparagraph (f) as underlined in the act