Colorado could privatize workers’ comp insurer….sort of

by R.J. Lehmann on January 19, 2012

John Hickenlooper, Colorado’s Democratic governor, took time in his State of the State address to double-down on his endorsement of privatization of Pinnacol Assurance, the state-run workers compensation insurer. While this is generally good news, unfortunately, Hickenlooper seems committed to having the state retain some ownership stake in the insurer, which it would use as an ongoing funding source:

(W)e have been thoughtfully exploring the potential benefit to businesses, injured workers and the state of Colorado from the separation of Pinnacol Assurance from the state. Done properly, and with the support of policyholders, a restructuring of Pinnacol could provide Colorado with a security interest that has the potential of funding economic development and higher education scholarships.

We asked a diverse task force of civic leaders and stakeholders with expertise in workers compensation to review this proposal. We look forward to sharing our recommendation with you before we move forward with a specific legislative request.

The link between higher education and economic development is very clear. They go hand in glove. So if we agree on a new future for Pinnacol, we hope you will also agree that funding for scholarships makes sense.

Hickenlooper’s initial plan would see the state take a 40% stake in an independent Pinnacol, valued at roughly $340 million, and would be entitled to annual dividends of about $13.6 million. With roughly 60% of the Colorado market, Pinnacol is the state’s largest workers’ comp insurer, by a wide margin.

The plan raises a number of questions, including whether policyholders would be properly compensated for their mutual ownership stakes in the newly independent Pinnacol. The continuing government involvement in the insurer also risks conflicts of interest that could see Pinnacol operate by a different set of rules than other private insurers.

However, given Colorado lawmakers’ history with Pinnacol in recent years — which include an aborted 2009 plan by the state Legislature to raid the insurer’s then-$700 million surplus — perhaps even an imperfect partial privatization would be preferred to business as usual.

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