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Denver, CO (CompNewsNetwork) - Pinnacol Assurance, a mutual insurance company, trying to fend off a legislative raid on its reserves, is rallying its customers to oppose the effort.
Fast Facts:
* To balance the state budget, Colorado legislators are considering a proposal to strip $500 million dollars from Pinnacol Assurance.
* The legislature is also proposing to drastically change Pinnacol's structure and operations as we know them today.
* This is a blatant attempt by the legislature to take away Pinnacol's ability to operate as an independent insurance company for the benefit of its policyholders.
* Pinnacol is not a state agency, and it receives no state funding. In fact, it is required to be self-sustaining and, therefore, does not expose the state to financial losses.
* Current law expressly prohibits any transfer of Pinnacol's assets to the State General Fund.
* Pinnacol's assets are not public funds. They are private funds set aside from premiums paid by Colorado businesses to ensure the safety and soundness of the company's obligations to injured Colorado workers.
* This legislation is a shortsighted, ill-advised effort to fill a budget deficit. The ramifications are multi-faceted, including higher workers' compensation costs, instability in the marketplace and uncertainty for injured workers and their families.
* Pinnacol Assurance provides workers' compensation insurance to 58,000 Colorado businesses.
To balance the state budget, Colorado legislators are considering a proposal to strip $500 million dollars from Pinnacol Assurance's assets. The legislature is also proposing to drastically change Pinnacol Assurance's structure and operations as we know them today. This is a blatant attempt by the legislature to take away our assets and our ability to operate as an independent insurance company. This proposed legislation is bad for Colorado taxpayers, bad for Colorado businesses, and bad for Colorado's injured workers and their families. These plans are ill-conceived, illegal and will set the state's workers' compensation market back 20 years.
Senate Bill 273, introduced by Sen. Al White (R-Hayden) and Rep. Don Marostica (R-Loveland) forces Pinnacol to give $500 million of its assets to the state by Sept. 1, 2009, as well as changes its status from a domestic mutual insurance company owned by its policyholders. Another bill, Senate Bill 281, introduced by Sen. Brandon Shaffer (D-Longmont) and Rep. Paul Weissmann (D-Louisville), would require Pinnacol to pay a dividend to policyholders with fewer than 50 employees, and commission a study to determine whether Pinnacol should be sold.
By law, Pinnacol is run as a mutual insurance company for the benefit of its policyholders. It is not a state agency, and it receives no state funding. In fact, it is required to be self-sustaining and, therefore, does not expose the state to financial losses. The law expressly prohibits any transfer of Pinnacol's assets to the State General Fund.
Pinnacol's mission is to provide workers' compensation insurance, even for those employers that cannot obtain private-sector coverage, thereby stabilizing Colorado's workers' compensation system. It provides insurance for 58,000 businesses, including some of the state's most dangerous occupations. This "safety-net" feature was at the core of the fund's original purpose and is central to its mandate.
Pinnacol is the backbone of Colorado's workers' compensation system. Raiding its assets and changing the company's structure and operations will do irreparable harm to a system that has been a model of fairness, stability and economic health since the sweeping reforms of the 1990s.
Pinnacol's assets are not public funds. They are private funds set aside from premiums paid by Colorado businesses to ensure the safety and soundness of the company's obligations to injured Colorado workers. These assets are needed in times of natural or man-made disasters, for catastrophic events involving mass injuries, to account for medical inflation and financial risk. While many insurance companies have seen drastic losses in value and sought bailouts from taxpayers, Pinnacol's sound management and prudent business practices have allowed it to remain financially sound.
The proposed legislation is in essence a hidden tax in the form of higher rates and reduced dividends that will hurt Colorado businesses. Changing Pinnacol's structure will take the company's assets out of its control and put them into the state's hands, jeopardizing rates and dividends. Affordable workers' compensation coverage is vital to a healthy economy. The vast majority of Pinnacol's policyholders are small businesses employing less than fifteen. Pinnacol's stable financial position has allowed it to reduce premiums by 42 percent in the past four years, saving businesses over $212 million. Only seven other states have lower premium rates for such coverage. Since 2005, the company has returned nearly $300 million in dividends to its policyholders. Taking over Pinnacol's ability to operate as an independent insurance company will most certainly reverse these trends and harm Colorado's businesses at a time when the business community is already struggling.
The proposed legislation imperils the promises Pinnacol has made to Colorado's injured workers and their families. Pinnacol's assets ensure the company's ability to compensate workers for medical expenses and lost income. Workers' compensation claims can require payouts lasting 30 years or longer. Without these funds and the company's control over them, there will be insufficient money to meet these obligations and Pinnacol's ability to provide high-quality safety services to workers and employers is threatened.
Understanding Pinnacol's history helps clarify some of the misperceptions regarding the company's status and why the proposed legislation is illegal. In 1915, the State Compensation Insurance Fund was created as a state agency to ensure that injured workers received medical care and to, ultimately, return them to full employment.
By the mid-1980's, the state agency was mired in financial difficulties that posed a serious risk to the state and taxpayers. Because of this, laws in 1986 and 2002 led to the evolution of Pinnacol as a stand-alone, self-funded entity mandated to protect injured workers and to insulate the state and taxpayers from liability.
Pinnacol has created a solid balance sheet that can weather unexpected emergencies or financial crises. Pinnacol has become a model of excellence nationwide for compensation funds, and Colorado taxpayers no longer face the risk of funding a mismanaged system. Pinnacol, operating as a private enterprise responsive to stakeholder concerns, has achieved impressive customer service satisfaction ratings of over 90 percent.
The legislature is seeking a short-term budget fix that will destroy Pinnacol's financial stability and a longer-term plan to revert the company back to state ownership. Raiding $500 million will cause reserves to fall below the requirements mandated by state statute, opening the company up to an increased level of supervision by the state insurance commissioner. In addition, changing Pinnacol's operations will create an unstable marketplace. This will not only hurt Pinnacol, it will also hurt Colorado's business community.
The legislature's proposal is contrary to existing law and violates constitutional protections. The original legislation creating Pinnacol specifically guarantees that:
The moneys in the Pinnacol Assurance fund shall be continuously available for the purposes of this article and shall not be transferred to or revert to the general fund of the state at the end of any fiscal year. All revenues, moneys, and assets of Pinnacol Assurance belong solely to Pinnacol Assurance. The state of Colorado has no claim to nor any interest in such revenues, moneys, and assets and shall not borrow, appropriate, or direct payments from such revenues, moneys, and assets for any purpose. C.R.S.A. § 8-45-102(5).
The proposed legislation is unconstitutional and illegal. It will set a dangerous precedent allowing the state to convert private funds for state budget problems and to take away a successful company's ability to operate as an independent insurance company. The idea of converting a compensation fund's assets to solve a state's budget crisis is not novel. Courts around the country have concluded that such legislative action is unconstitutional and illegal.
This legislation is a shortsighted, ill-advised effort to fill one year's budget deficit. The ramifications are multi-faceted, including higher workers' compensation costs, instability in the marketplace and uncertainty for injured workers and their families.
Pinnacol's board of directors has authorized an all-out effort to protect its charter and its ability to meet obligations to all Colorado stakeholders, and it is prepared to pursue all available legal remedies to preclude any legislative raid on its assets. Position Paper here
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