Pinnacol to Credit Policyholders $15 Million, Pay $80,000 Fine

Pinnacol Assurance will credit current policyholders $15 million as part of an agreement with the Colorado Division of Insurance to settle filing issues.

The credits will be issued against renewal premiums beginning in January 2011 and will be based on the pro-rata size of the policyholder's premium, the quasi-public workers' compensation insurer said in a statement. Pinnacol will also pay a civil penalty of $80,000, representing $10,000 per year for violations where the company inappropriately used unfiled schedule rating factors to set premiums for some policyholders, according to the insurance division. The agreement also obliges Pinnacol to make adjustments to some of the factors it uses to price policies.

"Because Pinnacol is the workers' compensation insurer of last resort in Colorado, employers who are Pinnacol policyholders often accept the rates without question or complaint. It’s important that the Division of Insurance maintain its vigilance to be sure that rates are not excessive, inadequate or unfairly discriminatory," Insurance Commissioner Marcy Morrison said in a statement.

The state-backed workers' compensation insurer has received stiff criticism from state auditors about how it does business (BestWire, June 9, 2010). According to a report from the Colorado Office of the State Auditor, examiners "reviewed Pinnacol's rate-setting processes for 2006 through 2009 and found weaknesses that raise concerns about whether Pinnacol's rates may be excessive, inadequate, or unfairly discriminatory." The examination demonstrated what may be overcharges for employer customers in a couple of the insurer's middle tiers (BestWire, Aug. 12, 2010).

The agreement resolves several audit recommendations and the insurer takes full responsibility for a 2002 non-filing that led to the $15 million sanction, Pinnacol Vice President of Business Operations and General Counsel Dan O'Neil said in a statement. He noted that the division did not specifically find Pinnacol's rates to be excessive, inadequate or unfairly discriminatory.

"We now have a director of corporate compliance who is responsible for all aspects of regulatory compliance including all necessary filings required by the DOI. Having an individual on staff with those responsibilities will ensure that this type of filing oversight does not happen again," O'Neil said.

The $15 million policyholder credit is less than 1% of the $4 billion in premiums Pinnacol collected between 2002 and 2009, according to Pinnacol.

The top five writers of Colorado workers' compensation insurance in 2009 were: Pinnacol Assurance Co., with a 53.4% market share; Liberty Mutual Insurance Cos., 7.6%; American International Group, 6.7%; Hartford Insurance Group, 5.5%; and Zurich Financial Services NA Group, 4.1%, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database.

(By Sean P. Carr, Washington Correspondent: sean.carr@ambest.com)