Fremont Indemnity Put Under Regulators' Control
NU Online News Service, June 6, 3:27 p.m. EDT?The California Department of Insurance announced this week that Commissioner John Garamendi has obtained a conservation order for insolvent insurer Fremont Indemnity Company, putting the insurer under the operational control of state regulators.
Commissioner Garamendi said Fremont's troubles are a reflection of the enormous problems plaguing California's workers' compensation system.
"This is an unmistakable signal that California's workers' comp system is collapsing. I see more of the same in our future unless we enact immediate, substantial legislative reform to address the out-of-control costs in the system," Commissioner Garamendi said.
"Basically, Fremont Indemnity has insufficient surplus under California law," Norman Williams, spokesperson for the California Department of Insurance, told National Underwriter. "Our law requires insurance companies to carry a certain amount of surplus to cover their claims, and Fremont had dropped well below that level," he said.
Fremont Indemnity was required to boost its loss reserves by some $300 million in 2002 to cover the increasing loss costs, and this depleted its policyholders' surplus, dropping it to nearly negative $300 million and making it insolvent under California law.
But Fremont Indemnity's travails are far from being an exception–there have been at least 25 workers' comp insurers like Fremont Indemnity that have failed in the past few years in California, Mr. Williams added.
"There is an urgent need to reform the out-of-control costs in the California system. The big reason for Fremont's failure is the system itself, the cost-drivers in the system–medical costs that are soaring, the unnecessary and costly litigation that has cramped the system, and the fraud–are all contributing to make it very difficult for companies to cover their claims. Their claims amount keeps rising," he said.
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