Price Soars for Southampton Workers Compensation Insurance

Less than a month after Southampton completed a contentious budget process, the town board was hit with news of a hike in workers' compensation insurance costs that could deal a crippling blow to municipal coffers — $600,000 more than budgeted for and nearly $1 million more than the town currently pays.

At a work session last week, General Services Administrator Richard Blowes and departmental attorney Sandra Cirincione met with the board to deliver the bad news: The town is facing a dramatic increase in its premium payment to the Public Employee Risk Management Association, the insurance company that handles the town's workers' compensation insurance claims.

Currently, the town is paying a premium of approximately $1.2 million per year. According to Blowes, PERMA is now demanding $2.1 million.

Blowes explained that the town had a high number or claims in 2006 and 2007. Subsequently, the town received a high "experience" rating, meaning PERMA had to pay out more than anticipated — and the town's rates spiked.

For the past two years, the town has had a fixed rate of $1.2 million. Now that the policy is up for renewal, Blowes said the town's estimate was that the new rate would equal approximately $1.5 million. But instead, PERMA issued a quote of more than $2 million.

The board members expressed shock over the news, based on the fact that the town's payroll has been reduced by $4 million and workers' compensation claims have declined steadily, down to $300,000-plus this year from $1.8 million in 2006.

Town Supervisor Anna Throne-Holst asked how the town could account for the "dramatic decrease" in the number of claims. Cirincione explained that "green claims," or cases that haven't been closed, can "wander in" up to a year later.

Representatives from both Maran Corporate Risk Associates, the town's insurance brokers, and the Bollinger Group — whom the town is considering hiring — explained that the town's "loss pick," or expected workers' compensation claims, is estimated to be approximately $1.5 million annually.

Once the whopping $2.1 million rate came in, Blowes said the thought was that PERMA underwriters might not have realized a few mistakes they had made, including using a projected salary of $40 million rather than the new town payroll of $36 million. Also, he said, PERMA had classified some employees incorrectly, which could affect risk assessment.

But even though PERMA representatives agreed to corrections, they still refused to reduce the premium, Blowes said incredulously. "This floored us."

And, he added, "to make matters worse," PERMA representatives told him that if it turned out they would have to pay back money to the town, they would refuse to do an audit.

"That's a little distressing," said Councilwoman Nancy Graboski.

"They're going to charge $2.1 million regardless of the information we provided them," Blowes said. "We're not just going to accept this. It's very disturbing."

Councilman Jim Malone said the move by PERMA was "unconscionable."

The board discussed working with the Bollinger Group, a firm that would act as broker between PMA, a company hired to handle claims, and an insurance company. Bollinger representatives said based on the town's experience, the premium should be $1.5 million, plus fees including those for handling claims and a New York State surcharge. Blowes said he plans to go back to Bollinger and discuss an "all encompassing" policy, which would include not just indemnity and medical charges, but any legal and state assessment fees.

Switching to Bollinger would mean the town would be self-insured to a certain extent.

Blowes explained that the proposal was for an umbrella policy with an aggregate cap of $3 million, and a $750,000 cap on individual claims.

After the board meeting, Blowes said the plan was still to "hammer" PERMA. "We are upset," he said. "Our honesty was used against us."

In , Mayor Mark Epley said workers' compensation claims have been down in recent years.

Village Administrator Stephen Funsch said the village is also on a two-year fixed-rate plan with PERMA. He echoed Blowes' assertion that PERMA bases its rates on a five-year claim history.

Like the town, the village had "a bad year" five years ago, Funsch said.

But Funsch said that next year, when the policy comes up for renewal, the rating will be favorable. "We're not facing anything huge."