Maryland’s State-Run WC Insurer IWIF to Become Private Nonprofit Co.

May 23, 2012

The Injured Workers’ Insurance Fund (IWIF), Maryland’s state-run workers’ comp insurance carrier, will become a private, nonprofit company under a new name Chesapeake Employers’ Insurance, effective Oct. 1, 2013.

The conversion is mandated by legislation (SB 745, the IWIF Conversion Act) passed by Maryland’s General Assembly and signed into law this Tuesday, May 22, by Maryland Gov. Martin O’Malley.

When the insurer becomes a private company, the conversion would protect the IWIF’s surplus from any further claims by the state to help balance the state budget.

Over the prior legislative sessions, the state introduced legislation to transfer funds from IWIF’s surplus to the state’s general fund. On May 22, Gov. O’Malley also signed into law SB 1301, the Budget Reconciliation and Financing Act, which requires a $50 million mandatory transfer from IWIF to the State General Fund.

“This ($50 million transfer) is to occur before July 1, 2013. Under SB 745, Chesapeake Employers’ Insurance Company comes into existence on Oct. 1, 2013. Therefore, the $50 million will be transferred to the state before IWIF is converted into Chesapeake Employers’ Insurance Company,” IWIF General Counsel Dennis Carroll told Insurance Journal. The current surplus at the IWIF is $335 million, Carroll said.

The Towson, Md.-based IWIF has been serving as the state’s largest writer of workers’ comp insurance and the insurer of last resort. It will continue its role as Maryland’s workers’ comp insurer of last resort after the conversion.

“This action will position us for continued success in serving the workers’ compensation insurance needs of Maryland employers,” said Thomas Phelan, president of IWIF. “The legislation will protect IWIF’s surplus and will allow us to remain financially strong.”

Phelan said there will be no change for policyholders and for the insurance agents with whom the IWIF works with. “For them, it will be business as usual,” he said. IWIF markets workers’ comp insurance through independent agents and also directly to business owners. IWIF’s current assets total $1.7 billion

The conversion establishes Chesapeake Employers’ Insurance Company as a private, non-profit workers’ comp insurer with the same mandate to serve Maryland employers only. IWIF’s existing nine-member board of directors will become directors of Chesapeake Employers’ Insurance Company. The Governor of Maryland will continue to make appointments to Chesapeake’s Board.

‘Protecting and Stewarding Our Surplus’

When IWIF becomes a private company, the state will no longer have any claim to IWIF’s surplus, the insurer said.

“Protecting and stewarding our surplus for the exclusive benefit of our policyholders is an important priority accomplished with the passage of this legislation,” Phelan noted.

“Otherwise, our surplus would remain vulnerable to future transfers by the state, rather than be available for their original purpose, which is financial stability to ensure payment of injured worker claims. I am confident IWIF will remain financially strong and will continue to provide exceptional service and rates.”

Another change involves the status of IWIF’s employees.

Current IWIF employees will have the right to continue as state employees and participate in the state’s retirement system, or they can opt to become employees of the new company and participate in its separate benefits plan. All employees hired on or after October 1, 2013, however, will be employees of Chesapeake Employers’ Insurance Company, not the state of Maryland.

Created by the state in 1914 as the Maryland State Accident Fund, IWIF has operated solely from premium and investment income. No taxpayer dollars support IWIF. From its beginning, IWIF has operated as a guaranteed market insurer providing workers’ comp insurance to all who apply, regardless of a company’s size or past claims experience.

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