Fire district's claims, costs result in higher workers' comp premiums
The Mehlville Fire Protection District's recent history of numerous and steep workers' compensation claims resulted in an insurance premium increase of nearly $94,000 for 2003.
The district's 2003 workers' compensation budget increased 18 percent to nearly $610,000 in 2003 from $516,000.
The district's preliminary 2004 budget projects a 23 percent increase in workers' compensation premiums to $753,034.
Steve Wicker of the Daniel and Henry Co. recently explained the district's premiums and participation in the Missouri Fire and Ambulance District's — MoFAD — insurance trust self-insured workers' compensation pool.
The basic goal of MoFAD, he said, is to pay the claims it has and to break even, so its rates were "considerably lower than you might find in the marketplace."
The district's estimated premium, Wicker explained, is based on its $10,496,409 payroll for the year, combined with an assigned rate for each of the district's personnel classifications, including ambulance, firefighter/driver, auto repair, clerical, buildings and fire code inspectors.
Once all the estimated premiums are added together, Wicker said that the "experience modification factor" is what "really drives your premium."
The experience modification factor is computed from the district's past three years of claims experience, not including the most recent year, by an organization called the National Council on Compen-sation Insurance, the same agency that computes the number for all insurance providers.
Average, he said, is an experience modification factor of 1.05. Mehlville's experience modification factor is 1.38.
"So at 1.38, this modifier is basically saying your losses have been 38 percent worse than expected over the three-year period they're looking at," Wicker said. "And it impacts your premium ...''
The estimated premium number figured from the payroll and assigned rates then is "modified" by the experience modification factor; in Mehlville's case, the estimated premium of $490,949 is multiplied by the 1.38 for a total of $677,510, he said.
"Then another way that MoFAD essentially lowers its rate is we can give a discount. This current year we're discounting at 10 percent,'' he said, noting Mehlville's premium then became $609,759.
The experience modification factor is more sensitive to frequency than amounts, Wicker added.
The district's current premium uses the experience from 2001, 2000 and 1999. In 1999, the Mehlville Fire Protection District had 55 claims totaling $333,802 — more than any other trust member by about $100,000. The next largest total incurred was the Creve Coeur Fire Protection District with just nine claims but the total amount incurred was $211,502. The Chesterfield Fire Protection District had 39 claims totaling $116,601.
In 2000, the Mehlville Fire Protection District had 54 claims, four of which are still open. The total incurred amount was $647,357. Chesterfield had 35 claims in 2000, totaling $207,393, and the Central Jackson County Fire Protection District had 30 claims totaling $165,386.
The Moline Fire Protection District incurred $303,830 from only five claims, and St. Charles County Ambulance had 28 claims totaling $380,026.
In 2001, the Mehlville Fire Protection District had 56 claims totaling $507,394. After Mehlville, St. Charles County Ambulance had 29 claims totaling $391,304. Chesterfield had 24 claims totaling $115,631.
The 2004 premium will be based on the years 2000, 2001 and 2002. In 2002, the Mehlville Fire Protection District had 37 claims totaling $518,801. In comparison, Chesterfield had 38 claims totaling $92,584. Central Jackson County had 26 claims totaling $70,160 and St. Charles Ambulance had 21 claims totaling $508,075.
Through the end of August 2003, the Mehlville Fire Protection District had 24 claims totaling $264,430. This completed year of experience will be used to calculate the 2005 premium.
The Mehlville Fire Protection District, whose premium makes up about 15 percent of the $4 million premium collected, is the largest member of the MoFAD trust, Wicker said. The loss fund used to pay claims, he said, is about 80 percent of that $4 million — about $3,200,000. Then a "gap" of $800,000 is used to pay MoFAD's expenses, which is the trust's excess insurance.
"Similar to what any work comp company would do, the first $300,000 of the claim, the trust pays. If the claim gets to be more than $300,000, then the insurance carrier comes in and pays that, and that's a large part of what the expenses are, or that "gap" number for us buying insurance," Wicker said.
Finally, there is an aggregate excess fund that would start to pay claims from the $4 million level up to $5 million.
"Hopefully we don't have more than $5 million in losses," he added. "We've been a member of the trust since 1989. There has never been assessments of members. There has been surplus distribution paid back to members — (but) not over the past two or three years."
Wicker also said that since 1989, only two claims exceeded $300,000. However, Sept. 11, 2001, has resulted in higher excess insurance costs because the trust would cover only $300,000 from an entire disaster like 9-11, while the excess insurance carrier would pay the rest.