It's no longer a rumor. Managers for the Preferred Auto Dealers Self-Insured Program, a 70-member self-insured group (SIG), confirmed last night that the group is a victim of the current credit crunch and will disband. Dealers will go into the regular insurance market.
"Given the state of the credit market they could not find an uncollateralized surety bond that would allow them to grow the program," says Peter Barden, a spokesman for CRM Holdings, the Bermuda-based parent of the group's manager Compensation Risk Managers of California. "While it's been a successful program, if they can't grow it there's some real concern that it won't remain successful. So they've decided at this point to go ahead and close it down as the prudent thing to do."
Amid the nation's on-going credit crisis and a drop in consumer spending, auto dealers have been one of the hardest hit sectors. Dozens of dealership around the state have closed and others still are threatened.
Barden said Preferred's board of directors decided to delay the closure until March 1 in order to give its dealer members an opportunity to obtain regular workers' comp coverage. A letter notifying members of the decision to close the group is scheduled to go out later today.
CRM gained notoriety last year when New York regulators moved to force the company to stop managing self-insured groups in that state. The action came amid allegations of under reserving for claims and has since spawned at least two lawsuits by former members of the failed self-insured groups, which are known as trusts in New York.
The state's Office of Self-Insured Plans confirmed that it is working with CRM to wind down the group's operations. Manager Jim Ware says an audit of the group's open claims will be conducted, but said he doesn't expect any surprises.
"Groups have to fund claims based on an actuarial projection of costs at the 80th percentile, which is as high as or higher than anyone else," says Ware. "When you fund at the 80th percentile there should be plenty of cash available to pay claims."
He added that OSIP has never had to take action against a SIG for not properly funding their operations and did not expect any issues to arise with this closure.
"The open claims will be run off and there will be no issue with that -- those will all be taken care of as required," says CRM's Barden. He did not have any data as to the number of open claims or the expected future liabilities. According to state records, Matrix Absence Management in Rocklin is the group's third-party administrator. "Staff members from CRM have already met with the Department of Industrial Relations, a letter will be going to DIR confirming that this will be happening and we'll work closely with them to make sure it’s a smooth transition."
But the auto dealers group is not the only CRM-affiliated group closing. OSIP also confirmed last night that the Vintners and Independent Producers Self Insurance Program of California -- a 30-member self-insured group for the wine-making industry – also filed to close down operations.
Before a SIG can officially end its run as a self-insurer, OSIP must audit all its claims to ensure that it has adequate reserves. SIP also requires proof of workers' comp coverage for each group member before an order revoking the certificate is issued. An audit of both groups is still pending, according to DIR.
CRM still manages three SIGs in California -- the Contractors Access Program of California, the Healthcare Industry Self-Insurance Program and the Western Independent Bankers Self-Insurance Program. Barden says no other closures are being contemplated at this time.