5.3. SR 01-09-2006 - Laserfiche WebLink

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What's behind the rate changes? PropertylcaslIalty Overall, the liability and property loss picture doesn't look much different than it did a year ago, and we don't see any new trends or alarming patterns. Liability loss costs, which make up about half of the property/casualty total, have been stable and in line with or below projections. though litigation relating to land use regulation and development continues to be a concern. Land use litigation costs average over $2 million a year- about 20% of the total liability loss cost - and they can vary a great deal from year to year. While the loss picture really hasn't changed a great deal, the liability rate decrease is possible because the LMCIT Board decided to significantly increase the ~mount of risk LMCIT retains on liability claims, from $500,000 to $1,000,000 per occurrence. We're also increasing LMCJT's retention on property losses, but by a smaller proportion. Keeping more risk significantly reduces our reinsurance costs, but of course it also means that we'11 be paying more of the losses directly and that our loss costs will vary more from year to year. LMCIT's strong fund balance makes it possible to handle that variability, but it may very well mean that citics will also see more variability in dividends from year to year as well. In the long run, we expect that the increased retention will produce a significant net savings for LMCIT members. Work comp This will sound like a broken record, but the main factor driving the 7% work comp rate increase for 2005 is rising medical costs. Medical costs for work comp injuries are continuing to increase at a rate of about 9% a year. What's causing that increase is a complicated issue, but one component is the increased use of prescription drugs in treating work camp injuries. Medical costs now make up just about half of the total cost of work camp loss costs - about as much as indemnity benefits, Special Compensation Fund assessments, and defense costs combined. One positive trend is that the frequency of work camp injuries has decreased in each of the past couple years. That's made it possible to keep the rate increase down to 7% - LMCIT's smallest increase in three years - and to again build a small contingency margin into the rates for the first time in several years. Hopefully cities can continue reducing the numbers of employee injuries; that's really the best tool we have to control future premium costs. Investment income remains a very important element in the LMCIT work camp program, though not quite as significant as it was a few years ago. Investment income now produces a little over a fifth of the program's total revenue; a few years ago, it was over a third. Nevertheless, investment income is still very important. Premiums alone would not quite cover projected losses, let alone administrative and reinsurance costs. 2