A Case Study in Privatizing a State Fund
INTERIM COMMITTEE TO STUDY ISSUES RELATED TO PINNACOL ASSURANCE
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09:40 AM -- Case Study in Privatizing
Mr. Doug Dirks and Ms. Ann Nelson, Employers Insurance Company of Nevada, were present to explain how the former Nevada State Fund was privatized. Mr. Dirks explained that states converting to private from public are doing so under the details of the laws of the respective states. Therefore, converting will be different for each state. The committee received a handout entitled "Oklahoma workers' comp panel meets" (Attachment C) which was a news article from newsok.com. Mr. Dirks discussed the time-line and process of the monopolistic nature of the Nevada system and its conversion to a private entity. He explained, in a stock company, people own stock and are eligible to participate in the running of the company. In a mutual company, you have no ownership, just certain rights. In Nevada, all assets and liabilities of the state fund were transferred to a mutual company. All policy holders became members at that time. Premiums paid to the company belonged to the companies that paid. Nevada had terminology in their statutes that detailed how such a transition should occur.
Ms. Ann Nelson, Employers Insurance Company of Nevada, provided a history of her employment with the agency. She explained Senate Bill 37 of the 1999 legislative session is a very long bill that reflected the compromise between the Nevada Senate and House regarding the transition from public to private. Ms. Nelson described the steps they took in order to transition. First, a board was created to derive the bylaws of the company. Then, the loss portfolio transfer and independent audit by the division of insurance were conducted as these were important to ensure the newly developed company would be successful. Nevada also had public employees that required provisions for employment rights for two years, to consider whether they wanted to stay as a state employee or remain with the new company as a private employee.
Questions began with Mr. Ken Ross, asking if it was the amount of the liability that motivated the transition. Mr. Dirks stated the first motivation was for competition, the second was that they believed the state should not be in the insurance business. Federal taxes are paid now since they are private. They provide workers' compensation only to about 30 states. Mr. Dirks clarified some of the processes that the company went through in the transition from a mutual insurance company to private. Representative Su Ryden asked about being the insurer of last resort. Both Ms. Nelson and Mr. Dirks agreed that Nevada had no intention of being the residual carrier, so the committee members were satisfied with having only 6 percent share of the market, down from having 65 percent share. They noted that the National Council on Compensation Insurance (NCCI) provides residual insurance to Nevada. Nevada writes policies particularly for small businesses. Senator Mitchell asked if the company was asked to pay an amount as its price for independence. Ms. Nelson explained that the question did come up, but since they were taking on such debt, they were not asked to pay an amount as a ''price for independence."
Mr. Mark Simon asked about the premiums paid. Mr. Dirks explained that insurance premiums did go down. Senator Harvey asked about the difference between Nevada and Colorado, noting the difficulty in comparing the two, since Pinnacol is the insurer of last resort and the Nevada group is not. Mr. Dirks stated that if someone can not be insured, they go through NCCI which has a list of providers. Senator Carroll asked if there was a noticeable difference between customer satisfaction prior to and after the transition. Ms. Nelson was not sure that such numbers or observations exist.