Georgia to Allow Failed Insurers’ Clients to Buy Into Insolvency Pool

June 9, 2010

Georgia Gov. Sonny Perdue has signed into law a bill allowing employers whose previous workers compensation carrier goes out of business to pay into the insolvency pool to cover injured workers’ claims.

The law has been criticized by private insurers.

Sponsored by Rep. Carl Rogers, R-Gainesville, who is an insurance agent, the measure (HB1364) responds to the liquidation order last October against Southeastern US Insurance Co. (SEUS), the state’s eighth largest workers compensation carrier. The insurer’s failure left thousands of hospitals, businesses and government agencies without coverage for claims by injured workers.

As a captive insurer formed in 2001, SEUS was exempt under state law from having to participate in the Georgia Insurers Insolvency Pool for claims prior to Jan. 1, 2008.

Rogers said there are more than 80 serious claims by injured workers whose employers had coverage with SEUS.

The bill will permit the employers of these injured workers to get coverage in the insolvency pool for these claims. Under the version of the bill signed into law, companies with net worth under $25 million can pay $10,000 per claim to have them covered by the pool; companies with net worth more than $25 million can pay $50,000 per claim.

Georgia Insurance Commissioner John Oxendine is investigating the SEUS collapse and the business practices of M. Clark Fain, III, the former chief executive officer of SEUS.

The new law has not gone over well with private insurers.

Liz Reynolds, Southeast state affairs manager for the National Association of Mutual Insurance Companies (NAMIC), said the measure seeks to address a tragic situation but does so in a way that violates core insurance principles.

“Requiring retroactive payment of claims by the Georgia Insurers Insolvency Pool for captive workers compensation insurers at ‘buy in’ amounts bearing no relationship to the true cost of the risk is like requiring an insurance company to pay a claim on a vehicle that was wrecked the day before coverage was purchased,” Reynolds said. “Ultimately, employers who have paid actuarially priced premiums and chosen to provide workers compensation coverage to employees through financially sound insurers will bear the costs incurred by employers who made poor choices regarding risk cost transfer.

Reynolds warned that the law could have far-reaching implications.

“Now that the bill is law, Georgia may become known as a state where the insurance industry and its customers cannot count on an appropriate and stable environment in which to do business. Georgia is already the only state allowing captive insurers to participate in a guaranty fund. Requiring payment of past claims that were never covered by the insolvency pool will lead to even greater insurance infamy for the state,” she said.

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