Friday, November 4, 2011

Privatization of Pinnacol Need to Account for CO's Small Businesses

Colorado's Pinnacol Assurance is back in the news with another restructuring attempt.

Pinnacol is asking the state of Colorado to approve a plan that would allow it to break ties with the state and operate as an independent entity.

The board of directors for the state-chartered carrier of last resort submitted a proposal to Gov. John Hickenlooper on Thursday that would initially convert the carrier to a mutual insurance holding company and set the stage for possible privatization at a later date.

Making Pinnacol a mutual company rather than an arm of the state would better position the carrier to continue providing competitively priced workers' compensation coverage, strengthen protections for injured workers, and provide short- and long-term economic benefits to the state without changing its role as the insurer of last resort, according to the restructuring plan.

Pinnacol cites Nevada's experiment with Employer's Holding company.

When Employers was formed the Nevada system was in a shambles and part of the solution for Nevada was the jettison of Employers from state control to cut costs, make it more competitive and efficient.

Employers history as a private company has demonstrated aggressive expansion.

In 2008 Employers merged with AmComp to get business opportunities in 28 other states, expanding its business operations seeking market share and diversification beyond Nevada's employer sector. In 2006 it entered a deal with Blue Cross to package work comp and group health to employers with fewer than 250 workers. In 2003 it bought Fremont's book of business when Fremont announced it was getting out of the work comp industry.

More recently Employers has been beholden to the rotten economy and lowering payroll based premiums as it has cut jobs and seeks savings across the board.

It does not appear that Colorado has the troubles that led to the Employers privatization, at least not presently. Indeed, much of the opposition to the Pinnacol plan is that "if it isn't broken, don't fix it."

A task force has been assembled by Gov. Hickenlooper to examine Pinnacol's proposal (which can be viewed here).

The job of the task force is not what the benefits of mutualization are, but what happens to the state's small businesses and their employees when times go bad (which eventually they do) and there is no "carrier of last resort". Bad times have happened in the past (or are happening now!) and will occur again.

A carrier of last resort is critical to small businesses, and one important aspect of a state controlled carrier is that the state can always force rates if necessary to give its businesses a break when times get rough. A state can't do that to an independent insurance company.workers compensation, work comp, injured worker

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