City managers ponder on $75,000 premium increase

While homeowners are sighing about possible tax increases; the city is sighing about a $75,000 insurance premium hike.

If a city worker is injured and unable to work again, or dies on the job, the city is responsible to pay his or her wages, medical bills and “anything that WSIB would cover” until retirement, according to the city’s risk management insurance officer Bruce Drake.

That is, until these costs total more than $400,000.

At that point, the “stop-loss” coverage the city has through a private insurance company picks up any subsequent bills.

“It’s a nice umbrella to cover the city in case something happens,” Drake said.

In the 2010 budget, the city will be paying an increase of $75,000, or more than 20 per cent, on the premium for the plan, bringing the premium’s total cost to $360,000 annually.

“One of the reasons is that it’s a premium that is based on your payroll, so the more people you have employed and the more payroll, the bigger your premium is.”

Inflation is also behind the increasing premium, Drake said.

In the 10 years the city has had the plan, it has not passed the self-insured retention limit of $400,000 yet, but it is expecting to in 2010 or 2011, according to Drake.

“The claims that have been filed, (the private insurance company) has yet to start paying because we haven’t reached our stop loss yet,” Drake said. “(The claims) are starting to get to the point now where they’re going to have to start to pay, and that’s only just becoming the situation now.”

As an example, “police and firefighters are in that $80,000 to $100,000 category,” Drake said.

For an “easy, round number,” he used the example of a $100,000 annual wage.

If an officer or fire fighter was injured, “we, the city, would pay the first four years, which would equate to the (self-insured retention limit). Then the insurance company would pick it up after that,” Drake said.

Without the policy, the city could be on the hook for large costs in the future, Drake said.

“If we didn’t have this policy in place, we could be looking at paying a lost wage for the next 40 years. Because of the policy, we may only have to pay eight or 10 years, depending on what the wage levels are before the insurance company kicks in and starts paying.”

Do we need this coverage?

The city is starting to question the coverage, according to the city’s director of human resources and organizational development Patrick Thomson.

“Being prudent managers of the purse, we’re thinking, ‘what’s going on?’” Thomson said. “We can’t afford these increases every year... It has many of us shaking our heads and going, ‘do we need this coverage?’”

One option to reduce the premium would be to raise the ceiling, also known as the trigger point when the coverage would kick in, according to Thomson.

“If we doubled the ceiling of when it kicks in, presumably our premiums would be cut in half.”

City staff is caught in an odd predicament, according to Thomson. They need the coverage or an alternative, but they would rather not be paying such steep premium increases.

“Our staff is saying, we’re big, but we’re not that big, we really need this insurance to be prudent managers.” But at the same time, “We can’t just keep paying $75,000 more (annually).”

The other options are to cancel the insurance, or start a reserve fund.

“(A reserve fund) is what (chief financial officer) Lorella (Hayes) mentioned,” Thomson said.

“Let’s just have a reserve and we’ll call it our WSIB stop-loss reserve. We’re going to put a million dollars in there and we can invest it and make interest, but if we ever need it because, God forbid, 10 firefighters die, we’ve got a million. It probably won’t cover the whole thing, but at least it will ease the pain.”

As far as implementing a reserve fund instead of the stop-loss coverage, Greater Sudbury CFO Lorella Hayes said it’s not recommended at this time. “At this point it’s preliminary,” she said. “At this point that reserve isn’t sufficient to eliminate this insurance coverage. It is something that we will be monitoring as time passes, but at this point it’s not recommended.”