Missouri State Auditor Blasts Missouri Employers Mutual Insurance Co.

After conducting an audit of Missouri Employers Mutual Insurance Co., Missouri State Auditor Tom Schweich said the state-backed workers' compensation writer has made a number of expenses that "would be considered excessive or unreasonable for a public-sector entity." Schweich called on the Missouri General Assembly to determine whether MEM continues to fulfill a necessary public mission.

Among the expenses Schweich took issue with were more than $300,000 for an all-inclusive retreat to Hawaii for 64 invitees; $280,000 to sponsor, donate or contribute to various events and entities; $80,000 for tickets and tailgating for University of Missouri athletic events; $80,000 for other company functions, such as retreats and golf outings, and jackets: and $17,000 for St. Louis Cardinals suite tickets, some of which went unused.

The audit also said MEM made political contributions totaling $8,000 to the Missouri Democratic Party, monetary and in-kind donations to a Political Action Committee, $4,000 in contributions for gubernatorial festivities, and payments for a former executive's legal fees.

MEM also paid $7.2 million for a for-profit insurance company with insurance licenses in other states. But the report said it is unclear whether state law allows MEM to provide coverage to Missouri companies that employ workers in other states. In addition, the MEM board has not established a dividend policy, and it has yet to declare a dividend to its members despite having accumulated a surplus of approximately $163 million.

The audit recommended the legislature investigate whether it is appropriate for MEM to continue as a "public corporation" and maintain a tax-exempt status, and if so, whether additional restrictions regarding employee compensation and operating expenditures are needed. The audit also said the legislature should decide whether MEM is subject to the state's Sunshine Law and whether it is permissible for MEM to participate in "other state programs" through the purchase of its taxable subsidiary.

Jim Owen, MEM chief executive officer, said MEM continues to serve its public purpose. For 17 years MEM has earned its position as market leader through a commitment to service and safety, he said in a statement. More than 12,000 Missouri businesses—more than 80% of which are small businesses—and their 1,200 insurance agencies "trust MEM as their workers' compensation insurer," Owen said.

"We're pleased this audit confirms the results of our own internal reviews: that MEM has proper controls in place," said Owen. "We agreed to this one-time, voluntary audit to demonstrate transparency and definitively answer any questions or concerns about MEM's processes and compliance."

However, Owen did disagree with the audit's finding that the company should be subject to Missouri's Sunshine Law. "The audit report erroneously concludes that MEM is a quasi-governmental body under the Sunshine Law. However, MEM was created to operate under the same statutes governing other insurance companies, and does not meet the definition of quasi-governmental body as stated in the report," Owen said. "Moreover, MEM is not subject to the Sunshine Law for good reason, as its operations are carefully regulated and as transparent as competitive insurance companies can be."

In 2011, MEM considered returning some of its $163 million surplus to policyholders as a legislative committee weighed new rules for the state's largest workers' compensation carrier (Best's News Service, Aug. 19, 2011).

The state-backed workers' compensation fund saw the indictments of two former members of its Board of Directors last year on fraud charges unrelated to their duties at MEM. The board also dismissed former President and CEO Roger Wilson, a former Missouri governor, without public explanation (Best's News Service, May 19, 2011).

The top five writers of workers' compensation in Missouri in 2010 were Missouri Employers Mutual, with 16.14% market share; Liberty Mutual Insurance Cos., with 11.18%; Travelers Group, with 10.5%; American International Group, with 7.98%; and Hartford Insurance Group, with 6.66%, according to BestLink.

(By Jeff Jeffrey, Washington Correspondent: [email protected])