That the City Council approve and authorize the City Manager to renew the City’s excess Workers’ Compensation reinsurance with Safety National Casualty with a policy limit of $50 million and a Self-Insured Retention (SIR), or deductible, of $1 million per claim for all employees at an annual premium cost of $212,282 for the period of March 20, 2022, through March 20, 2023.

The City’s current excess Workers’ Compensation policy will expire on March 20, 2022.  In an effort to secure the lowest cost renewal option staff instructed the City’s broker, Schrimmer Insurance, to solicit bids from reinsurers.  They contacted three carriers, of which two submitted a price proposal and one carrier declined to quote due to the number of open claims.

Current market conditions across the nation have made it challenging to identify insurance carriers who are willing to quote workers’ compensation policies for cities, especially due to the risk of exposure from public safety operations.  For this reason, Schrimmer Insurance was only able to secure two pricing proposals.  They indicated that the cost of insuring police personnel continues to be a significant factor in obtaining quotes and has significantly impacted workers’ compensation insurance premiums.  Additionally, it is anticipated that COVID-19 related workers' compensation claims across the country may exceed many agencies' insurance deductibles, including the City of La Habra, which is set at $1 million per case, due to the unknown long-term effects of the disease.

Another systemic factor impacting rates is the civil unrest demonstrations that occurred throughout the country in 2020.  Those events increased the number of large cost Workers’ Compensation claims from police personnel and other first responders that were involved in those demonstrations. As a result of these and other contributing factors, insurance carriers continue to spread their risk among all their policy-holders in the form of higher premiums.

Schrimmer Insurance was able to secure two pricing proposals, one of which is from the City's current carrier Safety National Casualty.  A summary of the City’s current coverage and all quotes for the excess Workers’ Compensation reinsurance are listed below:

Safety National Casualty’s proposal (Quote 1) has an excellent rating and superior financial strength, and its proposal includes a $1 million Self Insurance Retention (SIR) for all employees, including police employees, and an aggregate policy limit of $50 million at an annual premium of $212,282.  This proposal represents a premium increase of almost 13%, or $24,294, compared to the City’s current annual premium of $187,988.

Staff recommends the rejection of Quote 2 from Arch due to a significantly higher premium than proposed by Safety National Casualty.

Staff recommends renewing the City’s excess Workers’ Compensation reinsurance with Safety National Casualty.  This will provide coverage for all City employees with a $1 million SIR and an annual premium of $212,282. 

Sufficient funds for workers’ compensation insurance premiums have been included in the adopted Fiscal Year 2021-2022 Risk Management budget.  Staff recommends the acceptance of Safety National Casualty proposal with a $1 million SIR at an annual premium of $212,282.