Georgia Counters Captive Bill Criticism

Even though it was retracted, an insurer groups criticism directed at the Georgia Department of Insurance for its move to include workers compensation captives in the state guarantee fund has angered the states regulator.

The Property Casualty Insurers Association of America issued a statement last week criticizing H.B. 1076, sponsored by Rep. Ben Harbin. “This bills misguided attempt to shore up a few financially tenuous captives does a disservice both to the captives and the states admitted insurers, who will have to pay their claims if they go insolvent,” said Robert Herlong, Southeast regional manager for PCI, in a statement.

The next day another statement was released, noting that: “We have since retracted the press release and our previously stated position because of new information that we received on the issue.”

But John Oxendine, insurance and safety fire commissioner for Georgia, told National Underwriter that the press release was “totally irresponsible.” He said that “whoever wrote that press release had no idea what he was talking about.”

Even though the statement was retracted, he said, “its disappointing that you have an association that would send out a press release like that, and it seems they never read the bill. Everything they said in the release was wrong.”

The release went on to say that “guarantee funds are a limited payer of last resort, not an unsecured loan for troubled unlicensed insurers. Permitting the commissioner to sweep the captives insolvency problems under the rug and into the guarantee fund does not solve the real issuewhy are these entities experiencing financial difficulties?”

Mr. Herlong said that “licensed companies are subject to financial reporting, risk-based capital tests, financial examinations and other state regulations that captives dont have to fulfill.” He added that insurers and their policyholders “should not be penalized if a captive goes under.”

Mr. Oxendine noted that the bill only applies to association captives, not single-employer captives, and that it applies only to workers compensation and not to other products. He added that captives “currently have the same solvency standards, held to risk-based capital, as Liberty Mutual and other insurers. The only difference is that the association captives do not have rate-and-form regulation and the other insurers do.” The bill, he said, would apply rate-and-form regulation to association captives and put them on par with other insurers.

The PCI press release, he said, “talked about taking insolvent or troubled companies into the pool and making the pool pay for them. That makes no sense because the bill clearly says it only applies to claims arising after Jan. 1, 2005.” He explained that the captives will “have a year to get their rates and forms filed and approved. The only claims that would be eligible would be claims after Jan. 1, 2005.”

If there is “a troubled captive out there,” he said, “its troubled because of claims it already has. And those claims are not eligible for participation.”

The bill was designed to protect Georgia workers comp claimants, according to Mr. Oxendine. “We dont want to have people writing workers comp unless they are participating in the guarantee fund,” he said. “If someone is out on disability and doesnt get a weekly check, they could miss their payment and get thrown out of their home. There needs to be a fallback mechanism in case there is an insolvency.”

He said that the department is not trying to remedy past problems or bail out troubled companies. “Were saying a year from now they will pay contributions into the pool, and within the limits of the pool they will be eligible for protection, just like any other company,” he said.

According to Georgia captive law, associations that can write workers comp in a captive must have employees in Georgia. Those associations include the hospitality, textile workers and retail convenience store industries, he said. The domicile has 15 captives, with nine licensed in 2003.

Mr. Oxendine said the bill has passed the states House Insurance Committee. “We anticipate it will go to the full floor of the House and should pass the House next week without any problems,” he said.

Mr. Hurlong did not return calls or comment to National Underwriter.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

Special Reports /

Georgia Counters Captive Bill Criticism

Related Stories

Recommended For You