Approval is requested for the award of an 18-month contract, with an option to extend the contract for two additional one-year periods, to Claims Management, Inc., of Sacramento for Worker's Compensation claim administration services for the Department of Human Resources Risk and Insurance Division.

Since becoming an authorized self-insured entity for Workers' Compensation, the City has contracted with a third-party claims administrator because of the complexities and administrative requirements of the California State Labor Code. Typically, there are approximately 250 open claim files in various stages of processing at any given time.

In September 1999, staff issued a Request for Proposals for claims administration services. Ten proposals were received which were evaluated, based upon a number of criteria in addition to cost. At that time, public entity experience, including public safety expertise, and a high level of automation were considered the most important evaluation criteria. Claims Management, Inc., was unanimously selected by the evaluation team as the firm offering the best value to the City.

On October 26, 1999, Council awarded a three-year contract to Claims Management, Inc. (RTC 99-454).

Staff now recommends the continuation of the City's working relationship with Claims Management, Inc., by the award of a new 18-month contract, with an option to extend the contract by two additional one-year periods.

Claims Management, Inc. has provided acceptable service to the City in the area of claims adjusting. The strength of this firm lies in its sophisticated data capabilities, its responsiveness to changes requested by City management, and its willingness to apply creative incentive techniques to enhance service.

In the past, the claims administrator has been paid a flat fee for each open claims file. Effective July 1, 2003, staff has negotiated a new performance-based compensation plan. Fees will be calculated on a sliding scale; the lower the number of open files, the higher the fee per file. Should the number of open files be reduced from 250 to 210, the fee per open file will increase from $900 to $1,000. This will not only provide an incentive to the administrator to resolve all issues and close files as quickly as possible, it will also result in a $15,000 annual cost savings for the City.

Although it is impossible to predict claims volume over the next few years, staff estimates that the total cost of the initial 18-month contract will not exceed $375,000. Funds are budgeted in Program 785 - Workers' Compensation.