AIK Audit Shows Discounts, Even While Ky. Firm Was Slipping Into Shortfall

AIK Comp’s management provided millions in “premium discounts” to its members while the workers’ compensation insurance fund was slipping into a $59 million shortfall.

Louisville-based AIK Comp provided its members with $38.6 million in discounts in a three-year period that began Jan. 1, 2001, The Kentucky Post reported, citing an audit report prepared for the state’s Office of Workers’ Claims by a private consulting firm.

The discounts were meant to retain business from one year to the next. But the practice appeared to be the root cause of the $59 million shortfall the workers’ compensation firm now faces a deficit that more than 3,700 businesses in Kentucky are being ordered to cover.

“Giving discounted premiums to members before loss reserves can be reasonably established appears to be a key factor in the current financial distress of the fund,” said a report filed with the state this fall by York Consulting.

“The current deficiency could have been partially or completely offset had the trustees allowed for time to see losses develop over a reasonable time prior to returning any potential excess premiums to members.”

The discounts were offered in advance, according to Ernest Dry, one of the people appointed to oversee AIK Comp since the Kentucky Office of Insurance took control of the insurance fund in August.

The deficit prompted AIK to send out assessment notices to some 3,700 businesses across the state as it tries to avoid collapse by collecting the $59 million it needs to meet current and future liabilities.

Because AIK Comp was set up as a “group self-insurance plan,” anyone who buys insurance through the fund is classified as a “member” and is considered a co-owner of the fund. In the event of a financial shortfall, the company can assess members to cover the amount necessary to keep the fund solvent.

Topics Kentucky