Pinnacol Assurance To Credit $15M to Certain Policyholders

August 26, 2010

Colorado’s Division of Insurance announced it has reached a settlement agreement with Pinnacol Assurance, the state’s largest workers’ compensation insurer, concerning filing issues raised earlier this year.

Pinnacol has agreed to credit policyholders a minimum of $15 million against premiums in 2011 to correct at 2002 nonfiling that was identified in a recent audit. Only policyholders who are schedule rated will receive credit, according to the DOI. In addition, Pinnacol Assurance will pay a civil penalty of $80,000 (representing $10,000 per year for violations where the company used unfiled schedule rating factors in 2002 to set premiums for some policyholders.)

The company will maintain the minimum premium threshold it currently uses to qualify policyholders for schedule rating. A schedule rating is a tool that workers compensation carriers can use to adjust premiums, either up or down.

Additionally, the company will make adjustments to some of the factors it uses to price insurance policies.

In making the settlement, PInnacol said it took full responsibility for the 2002 non-filing and agreed that the terms in the agreement are in the best interest of policyholders and the state’s workers’ compensation market. Additionally, the company has named a director of corporate compliance, who will be responsible fo all aspects of regulatory compliance, inlcuding filings required by the DOI. “Having an individual on staff with those responsibilities will ensure that this type of filing oversight does not happen again,” said Dan O’Neil, Pinnacol’s vice president of business operations and general counsel.

“We have come to an agreement that the Division of Insurance believes will provide relief to Pinnacol policyholders,” said Colorado’s Commissioner of Insurance Marcy Morrison. “Because Pinnacol is the workers’ compensation insurer of last resort in Colorado, employers who are Pinnacol policyholders often accept the rates without question or complaint. It’s important that the Division of Insurance maintain its vigilance to be sure that rates are not excessive, inadequate or unfairly discriminatory.”

Pinnacol will cease to use two rate filing factors, which the DOI asserted were violations of Colorado law. The use of these two unfiled rating factors resulted in an agreement for Pinnacol to credit the $15 million to certain policyholders.

Pinnacol Assurance was the focus of a state-ordered audit in the spring of 2010. Details uncovered in the audit identified the use of rating factors which were not filed with the Division of Insurance as required by law. Findings in the audit raised concerns that Pinnacol’s practices could result in excessive, inadequate, or unfairly discriminatory rates.

“Workers compensation have decreased ver 35 percent in the past three years in Colorado. This agreement continues that trend and helps employers in Colorado by keeping their costs low so they can invest their capital in growing their businesses,” said Barbara Kelley, executive director of the Department of Regulatory Agencies.

The settlement agreement and original notice of hearing (now cancelled) can be viewed on the Division of Insurance Web site at www.dora.state.co.us/insurance/enforcement/2010.htm.

The settlement agreement addresses four main violations outlined in the “Notice of Public Hearing.” http://www.dora.state.co.us/insurance/enforcement/2010/cinvPinnacolStipFao082410.pdf.

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