1983-03-16 Regular Meeting La Porte City Council

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1 9 0 • ANALYSIS • Any numerical comparison of the types of proposals made' to the City of La Porte must be accompanied by a discussion of the structural differ- ences which are significant. The primary differences are cash flow and the degree to which total cost is sensitive to actual loss experience. In a conventional insured program the rates are guaranteed for a certain period of time. If losses are lower than expected, the insurance company makes a larger profit; if losses are greater than expected, no. additional charge is made for that year's losses. However, for a group the size of the City of La Porte, the actual loss experience will be considered in calculting the renewal insurance rates. Monthly cost is stable as it varies only with the actual number of employees and depend- ents. A retention plan differs from a conventional plan only in the way renewal rates are calculated. Actual losses and insurance company expense are compared to premium and a surplus on deficiency is deter- mined. This surplus or deficiency is then a more direct part of the calculation of renewal premium rates than in a conventional insurance program. A retro program is a more loss sensitive insured program which typically allows for a reduced premium paid during the policy year of about 10%. The insurance company then has a right to additional premiums if justi- fied by the loss experience. Monthly payments are even throughout the policy year just like a conventional program, but an additional payment of premium may be required at the end of the year. Some companies allow a 90 day premium deferral with their retro so that most of the cash flow advantages of a self -insured plan are achieved. A minimum premium plan allows the insured to pay losses as they occur; the monthly premium cost is for excess coverage and services only. This allows the insured to retain the cash flow benefits. This plan is also loss sensitive such that total cost is lower than the plans previously discussed if actual losses are lower than expected, but a higher total cost is generated when actual losses are higher. The degree of loss limitation (excess coverage) included in the plan varies with each insurance company. The Administrative Services Only (ASO) plan is a self -insured plan with excess coverage for each individual and an aggregate stop -loss at 125% of expected paid claims as estimated by the insurance company. The expenses for service and excess coverage are generally lower in this type of plan than any other but the potential for higher total cost due -1-