Colorado’s Workers’ Comp Insurer Offers $200 Million Divorce

A key Colorado Senator called a $200 million separation offer from the state-backed workers' compensation insurer "bizarre" and a "joke" that would hurt state taxpayers and injured workers.

Pinnacol Assurance Co. offered the state $200 million. In exchange, Pinnacol would fully separate from the state and become a domestic mutual insurance company "owned by its policyholders and committed to covering the residual market and to providing competitive and stable workers' compensation coverage in Colorado," according to a company statement.

State Sen. Morgan Carroll ridiculed Pinnacol's offer, saying, "This is the best laugh I have had all year." In a statement, Carroll said Pinnacol wants to pay off the state over a 30-year period, but maintain its tax-exempt status, keep its employees in the state pension system and end oversight by the state auditor -- while paying 10% of the company's estimated $2 billion value.

"Perhaps this joke is meant to look so bad that when they make their next 'offer' to the state, it can only look better in comparison," she said. Carroll, D-Aurora, chaired an interim committee that drafted a series of bills to restructure Pinnacol and reform the state workers' compensation system last year (BestWire, Nov. 16, 2009). Those bills are now under consideration in the General Assembly.

Pinnacol spokeswoman Suzi Stolte said the company will have no further comments about the proposal.

Created by state statute in 1915, Pinnacol was reorganized from a state agency to a mutual insurance company -- still with limited state oversight -- in the 1980s and 1990s. Critics said that while the state subsidizes Pinnacol with tax breaks, participation in the state retirement plan, legal assistance and other tools and services, public officials do not have a check on its activities (BestWire, Oct. 20, 2009).

Legislators have questioned Pinnacol board's spending policies and the size of the insurer's surplus. In 2009, lawmakers sought to take $500 million from Pinnacol's $650 million surplus to help balance the state budget (BestWire, April 15, 2009). That proposal failed to become law amid an opinion from Colorado Solicitor General Dan Domenico that Pinnacol's funds "are not assets of the state," that its shareholders have vested rights and "seizing them would violate the Colorado Constitution."

The proposed legislation would:

-- Restore a mandate for an annual report and require satisfaction surveys of injured workers;

-- Designate rates as the lower number between recommendations of the National Council on Compensation Insurance and an independent actuary and trigger a policyholder dividend when reserves reach 800% of risk-based capital;

-- Create a standard for having a reasonable basis to initiate surveillance of an injured worker in a fraud inquiry;

-- Add an injured worker and nonmanagerial employee to the Pinnacol board and require public notice of meetings and an opportunity for public comment;

-- Increase penalties for noncompliance with the law;

-- Prohibit incentives to delay or deny claims or medical care;

-- Require notification to injured workers of their rights.

In November, the Pinnacol board officially opposed five measures and endorsed two: the annual report and worker-notification bills. The remaining five exceed the limitations of a state law to study the workers' compensation market in the state and Pinnacol's structure, solvency and status, said Pinnacol Chairman Gary Johnson in November (BestWire, Nov. 16, 2009).

The top five writers of workers' compensation insurance in Colorado in 2008, according to BestLink, were: Pinnacol Assurance Co., with a 57.4% market share; American International Group, 6.2%; Hartford Insurance Group, 5.3%; Liberty Mutual Insurance Cos., 5.3%; and Travelers Group, 3.8%. BestLink provides online access to A.M. Best's Global Insurance & Banking Database.

(By Sean P. Carr, Washington Correspondent: [email protected])