Maryland’s Chesapeake Employers: Business as Usual for Policyholders, Agents

Maryland’s largest writer of workers’ compensation insurance and the insurer of last resort adopted a new name and a new corporate structure in October. The 99-year-old Injured Workers’ Insurance Fund (IWIF) officially became Chesapeake Employers’ Insurance Company on Oct. 1 and changed its structure from a state agency to a private, not-for-profit company, as mandated by legislation passed by the Maryland General Assembly in 2012.

The legislation protects the insurer’s surplus and allows Chesapeake Employers to remain financially strong. In addition, there is no change for the policyholders and the carrier’s agency partners.

The company still has the same mandate to serve Maryland employers only and will continue to serve as the state’s workers’ comp insurer of last resort. The governor of Maryland will continue to make appointments to Chesapeake’s Board.

Chesapeake Employers' Insurance Company CEO Tom Phelan

Tom Phelan, president and CEO of Chesapeake Employers, said everything that Maryland employers and their employees have come to expect from the IWIF over the years will remain unchanged, especially its expertise in workers’ comp coverage and its commitment and dedication to creating safer workplaces.

Chesapeake Employers holds a 23 percent market share for workers’ comp insurance in Maryland, far ahead of its competitors. More than 20,000 Maryland employers insure with Chesapeake Employers. The company, which has assets of more than $1.8 billion, employs more than 375 insurance professionals in Maryland and works with over 1,400 independent insurance agents.

“I believe we are the premier carrier in Maryland. We all are in the Maryland environment; we understand better what’s going on in Maryland than any other national carrier possibly could because this is right where we live, right where we work, right where we operate,” Phelan said in a recent interview with Insurance Journal.

“A couple of years ago, there was a debate in the legislature as to who actually owned the money that was sitting at the then-IWIF,” Phelan said.

After a lot of discussions back and forth, it was agreed on that the state would study what, if any, amounts they had contributed to the growth of IWIF over the years. “And we would reach an agreement as to how much money we owe the state of Maryland for what they have done for us and we would pass legislation that would in effect create Chesapeake Employers as a private, non-stock, not-for-profit company,” Phelan said. “Any legacy costs that were due to the state for any role it had played in helping IWIF would basically be paid for.”

A study conducted by an independent consulting firm then estimated that the state had given approximately $45 million worth of benefit to IWIF. “We had actually agreed on $50 million as a guaranteed floor no matter what the study showed, so we gave the state $50 million, and the legislation went through saying that the state has no further claim on any of our surplus or any of our assets,” Phelan said.

“With the exception of protecting our surplus going forward, we are the same company today that we were before and I think that’s a good thing,” he said.

Phelan said that during the conversion process, the employees were allowed to keep the state’s benefit plans if they wanted to. “The employees who were here with IWIF were in the state’s pension plan and the state’s health care plan,” he said.

“And we wanted to make sure that anybody who was at IWIF first had the option of either staying in the state system, health care and pension, or moving over to the new system that Chesapeake Employers would be using.”

Phelan said one challenging aspect of the transition was “going through a lot of nuances of putting up the new payroll, putting up the new health care system, putting up the new 401(k) defined contribution plan, putting those things in play and then moving the people who wanted to move over to that system.”

“That’s what made this challenging. If it had been a pure conversion of taking everybody who was at IWIF on Oct. 1 and saying, ‘You now work for Chesapeake,’ I think it would have been easier to do, but I don’t think it would have been the right thing to do,” he said. “And we do feel very good that we gave our people the option of which plan they wanted to be in.”

No Change for Agent Partners

Phelan also assured that there is no change for insurance agents with whom the insurer partners. Chesapeake Employers markets workers’ comp insurance directly to business owners and through the offices of independent agents.

“We usually pay two pieces to an agent in a year. One is a base commission and one is a contingent commission plan,” he said. The contingent commission plan usually covers different concepts such as profitability, growth and retention.

“As far as cutting back the total amounts that’s paid or changing the terms of the payment or changing the terms of the agreement, no. This should be absolutely transparent to them,” Phelan said. “They should not see any change other than what would have been done in the normal course of business.”

“Looking forward, we will mark our steadfast commitment to Maryland employers and employees as we celebrate our 100th anniversary in 2014,” Phelan said.