New York Looking to Clamp Down on Self-Insured Trusts

By | June 30, 2010

New York Gov. David Paterson wants to rein in the use of self-insured trusts in the Empire State, following the recommendation of task force formed in the wake of several high-profile trust collapses over the last several years.

The task force — created in 2008 following the insolvencies of over a dozen trusts, and the failure of a major third party administrator — released a report detailing the endemic problems of self-insured trusts in the state, and calling on lawmakers to shut down by year’s end any private self-insured trust that could not post security for its liabilities.

Self-insured trusts are used by groups of similar employers who pool their resources to self-insure for workers’ compensation insurance. The trusts, which share liabilities for payments to injured workers, have been a major concern for years as insolvencies of over a dozen trusts have created headaches for state regulators and prompted a major lawsuit by solvent trusts over assessments they were forced to pay.

According to the task force, there are 15 insolvent trusts in New York with an estimated combined deficit of $498 million. Approximately $379 million of that deficit has been attributed to self-insured trusts administered by CRM Holdings, the third party administrator that was kicked out of the state in 2008 for questionable management and botched reporting of trusts’ financial data. The state is suing the Bermuda-based firm for its role in creating the trusts’ woes.

The task force report concluded “that the inherent risks of group self-insurance, combined with the financial risks posed by insolvent groups, outweigh the potential benefits” and recommended that “efforts should be made to find acceptable alternatives to help the employers who are members of (trusts) obtain alternative coverage, with appropriate arrangements for orderly transition and provisions for all appropriate benefits for claimants and uninterrupted coverage for employers.”

As a deadline, the task force recommended that the group self-insurance trust program be eliminated in New York effective Dec. 31.

Paterson has introduced legislation that would institute the recommendations of the task force, including limitations on assessments imposed on group self-insurers and the creation of new rules for trusts, such as the requirements of an administrator and a means to secure the liability for the group’s members.

The bill, according to the governor’s office, “would stem a significant and growing cycle of financial loss, allow closed (trusts) to wind down there affairs in an orderly manner, and eliminate a workers’ compensation option that subjects employers to excessive risk.”

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