By Jim Sams, Senior Editor
The Florida Workers’ Compensation Insurance Guaranty Association is considering levying its first assessment since 2005 after a spate of insolvencies by insurers that specialized in large-deductible policies for the staffing industry left it liable for nearly $50 million in claims.
Guaranty Association Executive Director Sandra J. Robinson has suggested that tighter regulations on staffing firms that use large-deductible policies may be necessary as her organization copes with the liquidation of Park Avenue Property and Casualty Insurance Co. and its successors in 2009, Pegasus Insurance Co. in 2010 and Southern Eagle Insurance Co. in 2011.
Robinson noted during a March 22 meeting of the Florida Employee Leasing Board that the receiver for the Oklahoma Insurance Department has filed suit against 18 PEOs and staffing firms, alleging they have failed to pay Park Avenue and its successor carriers for policy deductibles of up to $1 million per claim.
Insurers that issue large-deductible policies must pay the first dollar of every workers’ compensation claim and then bill the policyholder for the amount that falls within the deductible. If the policyholders don’t pay, the insurer is left holding the bag. And if the insurer goes insolvent, the guaranty association is left with the debt.
After making a presentation to the Employee Leasing Board, Robinson expressed her concerns about that arrangement in correspondence with Torben Madson III, an attorney for the Florida Professional Employee Organization Association.
She said in an April 18 letter that as a result of the insolvencies, “there is a very real possibility that an assessment will need to be levied on every workers’ compensation policyholder in the state of Florida to cover the costs of these PEO large-deductible claims transferred to the Florida Workers’ Compensation Insurance Guaranty Association.”
“The underlying issue may be the use of large-deductible policies without adequate collateralization rather than the use of large-deductible policies in a particular industry segment,” Robinson said.
Although Robinson hasn’t suggested any specific new rules, the PEO industry is up in arms. Paul Hughes, chief executive officer of Risk Transfer in Orlando, said if Robinson believes more rules are necessary to protect carriers from insolvency, the place to start is the Office of Insurance Regulation, not the Employee Leasing Board.
“How many people are we going to blame before the regulators decide they need to change the regulations?” Hughes said in an interview Tuesday. “They keep pointing the fingers at PEOs.”
Hughes said Florida regulators should never have allowed Park Avenue and its affiliates to sell large-deductible policies in the state in the first place. He said a close examination of the carriers’ books would have shown that the company was unable to assume the risk of $1 million deductible policies, yet the guaranty association appears to be pointing fingers at the PEO industry, which is a victim of the insolvencies, not a culprit.
Robinson did not return calls from WorkCompCentral. But Tom Streukens, director of operations for the Florida guaranty association, said his boss’ intent was to share information with the Employee Leasing Board and learn what it can control and what it cannot.
“There was never any expectation that the PEO board should do anything, much less write new regulations,” Streukens said.
According to Robinson’s presentation to the Employee Leasing Board, the collapse of Park Avenue Insurance Co. and its successors, Providence Property and Casualty Co. and Imperial Casualty and Indemnity Co., left the guaranty association with 1,095 claims filed by injured Florida workers with a projected cost of $24.4 million.
The collapse of another Oklahoma-domiciled carrier, Pegasus Insurance Co., in 2010 added 502 claims at a projected cost of $5.2 million. The December 2011 insolvency of Southern Eagle Insurance Co., a Bradenton, Fla.-based carrier, left the guaranty association with an additional 252 claims with a projected cost of $20.3 million.
Those insolvencies and the liquidation of four other carriers in past years have left the guaranty association with a total projected claims cost of $164.3 million, according to Robinson’s presentation.
The Florida guaranty association has not had to levy an assessment to pay claims since 2005, relying instead on investment income and distributions from the assets of insolvent carriers. But Streukens said the guaranty association is now mulling an assessment — a cost that would be passed on to Florida employers — in order to pay for the claims it inherited from Park Avenue, Pegasus, Southern Eagle and other failed carriers. State law allows maximum assessments of up to 2% of direct written premium, or up to 3.5%, if the guaranty association declares an emergency.
The likelihood of that assessment depends largely on how successful the Oklahoma Insurance Department is in collecting debts that are owed to the estates of Providence and Imperial.
The Insurance Department’s receiver so far has filed suit against 18 staffing firms and professional employer organizations that allegedly did not reimburse Park Avenue and its affiliates for the claims that fell within deductible limits.
John O’Connor, an attorney with Newton, O’Connor, Turner and Ketchum in Tulsa, said his office plans to file additional lawsuits in the near future. He said all told, the Insurance Department is seeking about $100 million from staffing firms that held large-deductible policies with Park Avenue, Imperial and Providence.
The Oklahoma Insurance Department has also filed a lawsuit against the successor to Park Avenue, Providence Holdings, and its executives for alleged negligence in their handling of the carriers’ finances.
O’Connor said his firm is making some progress in settling alleged debts to the insurers’ estates, but not as much as he would like.
“If there is a good faith prompt effort on the part of the PEO to work on a resolution we are engaging in that process,” he said. “In many instances, what the filing of the lawsuit has done is send a message to the PEOs that we need a resolution.”