Oversight recommended for state insurance fund; IWIF task force calls for scrutiny by Md. administration; 2% premium rejected; Panel also advises fund be exempt from open-meeting laws


The task force charged with examining the state Injured Workers Insurance Fund recommended yesterday that the 80-year-old agency be subject to financial scrutiny by the Maryland Insurance Administration.

The panel, which faced a Nov. 1 deadline to make its initial report to the governor, also recommended that IWIF and its board members be exempted from the state public meeting and records laws and state ethics statutes. IWIF officials had complained that conducting its business in public put them at a competitive disadvantage.

In a third key recommendation, the panel, which Gov. Parris N. Glendening appointed earlier this year, recommended that IWIF be made part of an industry-financed guaranty fund created to protect policyholders in the event of a financial failure.

The task force rejected a proposal to make IWIF subject to a 2 percent premium tax levied on private insurance carriers.

The task force, which will continue its review over the next several months, deferred action on other proposals, including changing the governing board's composition and allowing IWIF to offer other types of insurance. The state-created agency is authorized to sell only workers compensation insurance. It is run by a seven-member board appointed by the governor and competes directly with private insurance carriers.

Glendening created the task force by executive order after a series of published reports raised questions about a 1996 multimillion-dollar, no-bid contract awarded by IWIF to Statutory Benefits Management Corp. of Baltimore.

The panel voted to recommend changing the laws governing the agency despite a last-minute plea from IWIF's board Chairman Daniel McKew and Sen. Thomas L. Bromwell, a Baltimore County Democrat, who has been a consistent defender of the agency and serves on the task force.

"I don't want to see the insurance commissioner going in and raising the rates," said Bromwell, adding that an IWIF rate increase would trigger an industrywide increase and hurt the state's business climate.

"The industry," Bromwell warned, "would love to see IWIF's rates raised."

In response to those concerns, the task force voted to require that if the state Insurance Department's financial reviews include recommendations for rate increases, then legislators must be involved in the process.

Under the proposal, the insurance commissioner's recommendations would first go to the IWIF board. If the board disagreed with his findings, the commissioner would be required to file a report with the legislature before implementing any rate increases.

Task force member Thomas H. Maddux said it was important that IWIF board members not be cut out of the process.

Insurance Commissioner Steven B. Larsen, who also serves on the task force, said that giving the legislature or its committees veto power over his actions would violate the state Constitution. He said that IWIF's board, just like the board of a private insurance company, could respond and comment on the findings before they were finalized. Only then would the examination report become public.

Larsen, stressing that ordering a rate increase would only be used as a last resort, said his agency's reviews and recommendations would consider IWIF's unique role. Under state law, IWIF, unlike its competitors, must sell workers compensation to any business that seeks it. He said the review also would consider the investment income IWIF earns from its nearly $1 billion in assets.

"It's not our job to run the company," he said.

Larsen's agency, under the proposal, also would conduct reviews of IWIF's marketing efforts, ensuring that advertising meets state standards and that it does not engage in any discriminatory practices. Those regulatory actions would not be subject to any legislative review or oversight.

The insurance commissioner, backed by task force members, said he had no problems with exempting IWIF from public meetings and records laws because private insurance carriers are not subject to those laws. Under the recommendation, IWIF would no longer be subject to legislative audits.

Budget Secretary Frederick W. Puddester, also a task force member, said the recommendation to place IWIF in the insurance guaranty fund would eliminate any question about the state's "moral obligation" to underwrite a bailout if IWIF were to become insolvent.

The recommendations will be forwarded to the General Assembly for consideration during the session that begins in January.

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