Plans to privatize Pinnacol pulled
By Marianne Goodland
Any legislative plans to turn the state-owned Pinnacol Assurance into a private worker’s compensation insurance provider will have to wait until next year.
Pinnacol CEO Ken Ross announced Tuesday that he had learned Pinnacol’s proposal of $330 million in exchange for privatization would not be considered by the General Assembly this session. A spokesperson for Pinnacol said Wednesday that information came from “various sources” at the capitol.
Pinnacol has made two offers to the state this year for cash in exchange for privatization: in February, they offered $200 million. In March, they upped that proposal to $330, with $200 million of it upfront, after a March 8 analysis by Morgan Stanley estimated the value of Pinnacol at $374 million. That analysis said Pinnacol had gotten a tax benefit of $51 million; had a surplus at the beginning of 2002 of $151 million, and had received capital support of $167 million.
“We are disappointed that this proposal does not appear to be moving forward because we believe it would have benefited our policyholders, protected injured workers and brought stability to Colorado’s workers’ compensation market,” Ross said in the statement. “We will remain open to further discussions with our elected officials to attain these goals.”
Pinnacol Assurance began as the State Compensation Insurance Fund in 1915, created by the General Assembly under the Workmen’s Compensation Act of Colorado. In 1987, it was declared a political subdivision of the state and in 1990 changed its name to the Colorado Compensation Insurance Authority. It became Pinnacol Assurance in 1999.
Pinnacol is considered the worker’s compensation insurer of last resort; any Colorado business denied worker’s compensation insurance by other companies must be covered by Pinnacol regardless of risk.
The issue of privatizing Pinnacol began heating up last year, when the Joint Budget Committee initially included a $300 million cut to higher education in the 2009 Long Appropriations Bill. That cut was to be backfilled by taking $587 million from Pinnacol’s reserves, carried in SB 09-273. The bill passed the Senate but died in the House just days before the end of the 2009 session. Instead, the Legislature passed SB 09-281, authored by Senate President Brandon Shaffer, D-Longmont, which created an interim committee to examine Pinnacol’s
During the summer of 2009, the interim committee came up with seven bills that would deal with issues such as surveillance of people who file worker’s compensation claims, conflicts of interest related to physicians and incentives to deny claims, and increasing the penalty for violating worker’s compensation laws, among others. The committee also drafted a bill to privatize Pinnacol as of January 1, 2011, but it did not get the committee’s full support.
Six of the seven bills were being heard by the Senate Judiciary Committee on Wednesday; the seventh, HB 1356, a policyholder protection act, was introduced in early March and is scheduled for hearing in the House Business Affairs and Labor Committee on April 6.
Those seven bills also became part of the Pinnacol offer. The company’s first separation proposal on February 11 required that in addition to coming to agreement on a price, that no “unapproved Pinnacol legislation is passed this session (including the interim committee bills).”
Rep. Sal Pace, D-Pueblo, a member of the interim committee, called the request regarding dropping the legislation “bribery.” Pace and four other Democratic members of the interim committee sent a letter to Gov. Bill Ritter toward the end of February, asking him to oppose privatization of Pinnacol in part because of concerns over executive compensation, lack of accountability and oversight, and a reluctance to pay claims, according to The Pueblo Chieftain. The revised offer from Pinnacol, on March 18, dropped that request.
Shaffer has been less than enthusiastic about the Pinnacol proposal since before even the first offer was made in February. In a statement issued this week, Shaffer referenced a performance audit of Pinnacol that was mandated under SB 09-281. The state auditor annually audits Pinnacol’s financial statements; the performance audit is expected to be released sometime in June, according to the auditor’s office.
“It would be irresponsible to move forward with any Pinnacol proposal before receiving the information from the performance audit,” Shaffer said Tuesday. “I took a position on Pinnacol early because I saw this as a distraction from the most important issues facing the Legislature this session: creating jobs and balancing the budget.”