Senators look to change state-created insurance firm
Wednesday, March 7, 2012
The CEO of Missouri Employers Mutual Insurance Co. endorsed a proposal Tuesday for lawmakers to study whether any changes are needed to the state-created company after an audit recently criticized it for excessive expenses.
But CEO Jim Owen urged lawmakers not to adopt a more aggressive proposal, which would force the company to pay $127 million to the state and spin off a new private insurance firm by the end of the year.
The Senate Small Business, Insurance and Industry Committee began hearing testimony Tuesday on a trio of bills reacting to problems and concerns with the Columbia-based workers’ compensation insurer. The interest in the proposals exceeded the committee’s time, forcing the hearing to be continued until lawmakers return from their annual spring break the week of March 19.
In recent years, two board members of Missouri Employers Mutual have faced federal indictments for alleged financial crimes unrelated to their duties on the board. Both members died before going to trial. An ongoing investigation by the FBI also is looking into whether the company — or former CEO Roger Wilson, a previous Missouri Democratic governor — directed $8,000 to be passed through a St. Louis law firm as a political contribution to the Missouri Democratic Party.
Last week, State Auditor Tom Schweich reported MEM racked up millions of dollars on employee salaries, bonuses, severance payments, expenses and junkets that would be excessive for a public entity. Schweich said the company had built a competitive advantage by enjoying a best-of-both-worlds scenario — avoiding federal income taxes by claiming to be a public corporation yet generally operating as a private entity and insisting it is exempt from the state Sunshine Law.
On Tuesday, the Senate committee chairman, Sen. Scott Rupp, R-Wentzville, said the company “just reeks of political cronyism.” But he praised Owen, who took over as CEO last year, for taking steps to control expenses.
One reason the company has received a federal tax exemption is because three of its five board members are confirmed by the governor. Owen acknowledged Tuesday the gubernatorial approval essentially was a “rubberstamp” on the company’s own decisions. He said MEM would be open to requiring directors to be approved by both the governor and state Senate.
He also said the company, which has a surplus of $163 million, plans to pay a dividend this year based on its 2011 profits — a suggestion cited in the audit. And Owen said the firm has eliminated out-of-state travel for board of director events, though it will continue an annual trip rewarding its top insurance salespeople.
Owen backed a bill by Rupp that would create a special Senate committee to study whether the company should be sold, privatized or ended. He expressed confidence the analysis would find the company is providing an important service for its 12,000 policyholders.
“Under new leadership, we operate responsibly and with integrity, and we believe we are vital to the state of Missouri,” Owen said.
A separate bill by Sen. Jim Lembke, R-St. Louis County, would require Missouri Employers Mutual to phase out its current name and structure as an “independent public corporation” and to spinoff a purely private-sector insurance company by January 2014.
A third bill by Sen. Eric Schmitt, R-St. Louis County, would require the same thing with an added twist. Missouri Employers Mutual would have to pay $127 million to the state between July and September, and the new company would have to be set up by January 2013. Schmitt was ill and so did not explain his bill Tuesday to the committee.
But Owen said MEM is opposed to paying the state a portion of its surplus, which helps ensure the company can cover future claims.
“It would be against the interest of the company,” Owen told reporters after the hearing. “That policyholder equity is there for the protection of the policyholders.”