Stinking funds

Risk & Insurance, Feb, 2005 by Cyril Tuohy

The bad apples among self-insured workers' compensation funds are starting to stink. The latest stench to waft into the public domain comes from Associated Industries of Kentucky, a self-insured workers' comp trust fund. A.I.K. used run a surplus in the tens of millions of dollars. Last fall, the fund was projected to end 2004 in the red by $48 million.

G. Thomas Dutmers, COO of Wexford Underwriting Managers Inc. and his peers seem to think the Kentucky fiasco is an exception--but only if we forget about the scandals that swept over self-insured funds in Oklahoma and Illinois in the past.

The causes for A.I.K.'s failures run from underpricing, competition from carriers in the softer market and management blind to its own risk exposures.

And what about the agents steering business into these poorly run funds? How many of them knew that something was amiss? The fund, after all, has been running losses for several years.

You can bet Bluegrass state employers are going to be singing the blues in the face of some big hikes to allow the fund to pay its claims.

"Properly run and properly recognized, these problems shouldn't exist," says J. Edward Costner, president of Casualty Actuarial Consultants Inc. No kidding. But the pattern of failure is a little too regular to ignore. There's something rotten in the state of self-insured workers' comp funds.

Cyril

Tuohy

MANAGING EDITOR

ctuohy@lrp.com