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More states weigh privatizing comp funds

workers comp

The push continues to privatize state workers compensation funds, with supporters touting the benefits of creating a competitive market and opponents expressing concern about the impact on the residual comp market.

Several states have seen such conversions in the last 10 years, including Arizona, Maryland and Oklahoma, and legislative efforts are now underway in Colorado and Missouri to follow suit. 

On March 5, Republican lawmakers in Colorado introduced H.B. 1432, which proposes to privatize state-funded Pinnacol Assurance, which underwrites about 40% of the state’s workers compensation market.

Efforts to privatize Pinnacol were last proposed in 2011 when then-Gov. John Hickenlooper created a task force to consider restructuring the insurer. A spokeswoman for Denver-based Pinnacol said at the time that the insurer did not have the support of key business organizations representing policyholders.

In 2016, the state-chartered insurer proposed forming a subsidiary to sell workers comp coverage to other states while remaining the insurer of last resort in Colorado. That effort also failed.

The privatization of state funds is a trend that has been in the works for several decades, said Robert Hartwig, clinical associate professor and director of the Risk and Uncertainty Management Center at the University of South Carolina in Columbia.

“There’s a general view that the notion of a state fund is a bit of an anachronism,” he said. “There can be legitimate concerns in terms of the management and the funding of a residual market mechanism, but if we look across the country, we can see that there are tried-and-true processes for managing the residual market.”

Under the terms of the Colorado bill, the state would receive a one-time payout of $305 million for the divestiture of its interest in Pinnacol.

“Workers comp is a highly competitive line which is increasingly dominated by national players offering multiple lines,” Pinnacol President and CEO Phil Kalin said in an email. “That leaves Pinnacol standing on a shrinking platform and ultimately fewer workers benefiting from our care and coverage.”

Mr. Kalin noted that 30% of new business filings in the state in 2020 were for companies with multistate operations that Pinnacol cannot serve without requiring the policyholder to seek another insurer for workers comp coverage outside of Colorado.

“And if COVID has shown us anything, it’s that office-based workers can work from anywhere,” he said.

On Jan 12, a Republican Missouri lawmaker introduced H.B. 761, which would require the state-controlled Missouri Employers Mutual Insurance Co. to transition into a private mutual insurance company.

The bill would require the board of directors of Columbia-based Missouri Employers Mutual to outline steps for converting into a private mutual insurance company by the start of 2022.

The same lawmaker put forward a nearly identical bill in early 2020 that died in committee.

A spokeswoman for the Columbia, Missouri-based insurer said she does not expect the bill to pass. The legislation has been read twice in the House but not yet assigned to a committee.

Steve Bennett, assistant vice president of workers compensation programs and counsel for the American Property Casualty Insurance Association, which has publicly supported privatization efforts by state funds in the past, sees privatization as a way to create a level playing field in the comp market.

“What we want is a situation where the state fund is clearly privatized and the residual market is taken care of in a system that is fair to all private insurers — the state fund would not retain the residual market,” he said.