State Insurance Commissioner Steven B. Larsen, citing troubling financial warning signs, has told a task force that he believes the state Injured Workers Insurance Fund should be made subject to the same financial review and regulation as private insurers.
Larsen said in an interview yesterday that the financial data on IWIF he has seen thus far shows the Towson-based agency was paying out about $1.75 in claims and other expenses for every dollar it collected in premiums during 1998.
"Unquestionably that is a high ratio. We would be taking a very close look at a private firm if we saw those kinds of numbers," Larsen said.
While stressing that he was not saying there was cause for alarm, Larsen said that if a regulated insurance firm had that high a ratio of claims and expenses against premiums, "we would be asking a lot of questions." He acknowledged the IWIF's operating losses were more than offset by investment income earned by the agency.
By comparison, he said, private insurers generally attempt to keep the amount paid out in claims at or below the amount collected in premiums. Regulators in California recently expressed alarm at a report showing insurers were paying out $1.30 in claims and expenses for every dollar in premiums collected.
IWIF board chairman Daniel E. McKew said yesterday that he agreed the loss ratio was cause for concern and needed to be addressed, but cautioned against taking actions, such as boosting premiums, that would hurt Maryland businesses.
IWIF, run by a board appointed by the governor, sells workers compensation coverage to thousands of Maryland companies and competes directly with private insurers. This year Gov. Parris N. Glendening, responding to critical reports on IWIF's management, appointed a task force to review it.
Larsen, who also is a member of the panel, made a presentation of his views Wednesday along with a 10-page written analysis comparing IWIF to other state created insurance agencies like the Maryland Automobile Insurance Fund.
The comparison shows IWIF, unlike MAIF, is not covered by an insurance guaranty fund to protect policyholders in the event of a financial failure. In addition, IWIF's rates are not subject to review by the commissioner. IWIF also is exempt from the tax on premiums that is paid by the private firms.
Larsen said the financial reviews or examinations his department performs on private insurance firms are "probably the most important thing we do. If there is a failure [of an insurance company], it can be extremely disruptive."
"Personally I couldn't see any aspect of IWIF's operations that would justify the conclusion that they don't need to be regulated," he said.
He said that while IWIF does undergo financial reviews by the legislature and private accounting firms, those reviews are not made under the same "more conservative" requirements used by state examiners. IWIF's financial condition, Larsen said, is all the more important because it holds the largest single share of the state's workers compensation market.
"It heightens the need for vigilance," he said.
Earlier this year, IWIF officials argued before a legislative committee that its board of directors provided the necessary oversight and that regulation by the insurance commissioner was unnecessary. McKew said that the real issue the task force and the legislature must decide is whether IWIF should serve as an active competitor or an insurer of last resort.
Larsen said that if his agency were given regulatory authority over IWIF, examiners would review not only the losses and other expenses, but also the investments. He said insurance accounting rules set by the National Association of Insurance Commissioners place stricter limits on the assets that can be credited to an insurance firm.
"The concern is that when you're writing business at such a loss and relying on investments, if the market goes down it can very quickly affect your bottom line," Larsen said.