We recently blogged the collapse of the self-insurance trust market in New York. When CRM Holdings, a Bermuda based operator of self insurance groups (SIGs), folded like a house of cards, the New York comp board went after the healthy SIGs to cover CRM’s liabilities. They hit these innocent folks with a whopping $11 million assessment. As a result, a number of SIGs abandoned the New York market, only to learn two years later that the comp board’s assessments were illegal. Oh, well. It seemed like a good idea at the time.
Now we move a few miles to the east and find a similar situation brewing in Connecticut. Municipal Interlocal Risk Management Agency (MIRMA) has been writing comp policies for municipalities since 2002. The great thing about comp is that it’s so easy: offer coverage at rates lower than competitors, collect the premiums and pay the claims as they come in. Unfortunately, the premiums MIRMA has been collecting are not covering the claims generated by the insured municipalities. So MIRMA is in the uncomfortable position of trying to collect additional funds from cash-strapped municipalities. For example, North Branford owes $600,000, Westbrook owes $158,000; and Killingworth owes $71,188. In these trying times, that’s not exactly chump change.
The legislature passed a bill to give the municipalities more time to come up with the money. The bill would have amended the amount MIRMA was required to keep in its reserves, and thereby allow the towns to pay the amounts they owe, interest free, over four years. Governor Jodi Rell is not buying that approach; she vetoed the bill. The governor issued a statement:
MIRMA has been undercapitalized since its creation. Although it has been given several years to remedy its financial situation, it has failed to do so. Now, providers are not being paid and injured workers are at risk of not being treated. MIRMA can no longer exist in its current state of outright capital inadequacy.
The governor went on to state that MIRMA stopped paying workers’ compensation claims simply because it does not have the money to pay, which is “wholly unacceptable.” She wrote that MIRMA’s deficit has grown by more than 300 percent in the last six years, and is predicted to reach well over $15 million by 2013. That might seem small by CRM standards – their deficit was upwards of $50 million – but then again, Connecticut is a lot smaller than New York.
Untrustworthy Trusts
The governor has ordered a complete review of MIRMA’s finances. I could write the report without even looking at the books. In their effort to build market share, MIRMA underpriced their policies. They probably spent a lot on marketing and frills. To balance the books, they under-reserved claims, hoping to cover the cash short-fall by building market share. It worked until it didn’t. Now they have run out of money, so they cannot pay the claims. If the auditors have a sense of history, they will conclude that MIRMA operates like a subsidiary of CRM.
NOTE: CRM, still operating in California, appears to be on the ropes.
Connecticut’s short term solution – requiring the insured municipalities to come up with the money – is fair, if hardly feasible. At least Connecticut is not going to penalize the municipalities who declined to participate in what appears to be MIRMA’s modified Ponzi scheme. That’s good. But it remains to be seen how cash-strapped municipalities – already facing substantial budget cuts – are going to come up with these substantial sums of money.
When it comes to self-insurance trusts in the Empire and Nutmeg states, it’s time to put away the beer kegs and cancel the golf outing: the party is over.
