State to change insurance firm

Wednesday, Dec. 13, 2000 | 10:29 a.m.

CARSON CITY -- Gov. Kenny Guinn plans to pull the state's workers' compensation business out of Employers Insurance Co. of Nevada, ending an 87-year relationship.

It was Guinn's plan two years ago to convert Employers Insurance from a state agency into a private company. And now his administration finds it more economical to place its industrial insurance business with another firm.

The state has been paying $10.5 million a year to Employers Insurance to provide medical and rehabilitation coverage for workers injured on the job. And Guinn estimates the state can save anywhere from $3 million to $5 million a year by the switch.

The contract with Employers Insurance ends Dec. 31 and state Risk Manager Susan Dunt said Tuesday it will now be covered by American International Group of New York, the fifth largest writer of workers' compensation in the nation.

Eventually the state intends to become self-insured, providing its own coverage for its 14,000 workers.

Even though this is the loss of a big account for Employers Insurance, Douglas Dirks, chief operating officer, said the switch will "have no meaningful impact on our profitability."

"The state has a wide variety of risks -- correctional officers, highway patrolmen and firefighters. It's an account with a lot of exposure to risk," he said. And that means a lot of medical and rehabilitation costs.

"If the state has an opportunity to save money, we should all support it," said Dirks, who headed the system when it was a state agency.

Employers Insurance, which had several prior names such as the Nevada Industrial Commission and the State Industrial Insurance System, was formed in 1913 as a state system with a monopoly for covering injured workers.

Last January the company went private and in its first six months of operation posted a profit of $5.5 million. It had 18,000 policyholders earlier this year and its next financial report is due in March.

Dunt said the state put its business out to bid in July and got four proposals. In talking about Employers Insurance, Dunt said, "It was different. They had to compete. When we crunched the numbers, they didn't work out in their favor."

She said the state will pay a $2 million a year premium to American International and also pay a certain amount on each claim based on the severity and the number. The claims payments, she estimated, would cost $3 million to $4 million a year. The policy has a high deductible of $750,000. That means the state pays any amount up to that figure and American International covers catastrophic accidents that occur on the job.

Dunt said the state insisted that American International hire a local firm to process the claims so the state could keep a better watch.