DENVER—The state-created workers’ compensation insurer, Pinnacol Assurance, has built up a surplus of $698 million—about six times more than regulators require—and lawmakers see its extra money as a way to save Colorado’s budget from deep cuts.
But Pinnacol, business groups and lawmakers are at odds over who that money belongs to and whether taking it would hurt companies insured by Pinnacol.
Pinnacol is a hybrid public-private entity set up by the Legislature in 2002 to be the worker’s compensation insurer of last resort. By law, it can’t turn down any company that needs coverage. It doesn’t pay state or federal taxes, and its board is appointed by the governor.
However, the statute that created it says it’s not a state agency.
State insurance division records show Pinnacol’s surplus—after accounting for actual and possible claims—has grown by about $100 million a year over the last five years, reaching $698 million at the end of 2008.
The company has increased policyholder dividends during that time, paying $79 million last year.
The Joint Budget Committee backs a bill to take $500 million from Pinnacol’s reserve and leave it with $198 million, or $85 million more than regulators require.
Without that money, committee members say, the state’s colleges and universities will lose $300 million next fiscal year, or about half their budget. They also would lose about $130 million in federal stimulus money, raising the possibility some schools might have to shut down or drastically downsize.
Kenneth Ross, Pinnacol’s CEO, defended the large surplus Thursday. He said that unlike other insurers who can call on parent companies for help, Pinnacol is on its own in paying out claims, which can last up to 30 years.
He added that the company has reduced rates by 42 percent and returned $227 million to its customers over the past four years.
Pinnacol also has maintained that the money belongs to the companies that buy insurance from it, not the state.
The Denver Metro Chamber of Commerce, which buys coverage from Pinnacol, opposes the move. Spokeswoman Kate Horle said Pinnacol has kept rates low and helped create a stable workers’ compensation system that is a plus in attracting businesses to the state.
Horle also said money paid by businesses for insurance shouldn’t be used to shore up the state’s budget, especially when the state hasn’t laid off or furloughed any workers as the private sector has had to do because of the recession.
“Government has to make those tough decisions too,” Horle said.
Senate Majority Leader Brandon Shaffer insisted that lawmakers created the company and have the right to rewrite the law. He said Pinnacol acts like a private company yet benefits from not paying taxes.
Its executives’ salaries are more in line with the private sector than government. In 2008, Ross earned $448,813—including $131,545 in bonus payments—according to filings with the state insurance division. That’s $178,000 more than in 2006.
Ross said his salary included a bonus based on his performance and he thinks his overall compensation is too low.
“It’s a difficult decision. There is no question about it,” Shaffer, D-Longmont, said Thursday. “This economic environment leaves us with no simple solutions to problems.”
Sen. Al White, R-Hayden, said taking the extra money won’t hurt policy holders and might even nudge Pinnacol to lower rates and prevent another surplus from building up, only to be taken by the state again.
