CRM: Wreaking Bi-Coastal Havoc in Self Insurance

December 6th, 2010 by

You may recall the New York saga of Compensation Risk Managers (CRM), who single-handedly brought down the entire workers comp self-insurance group (SIG) industry in the empire state. Well, CRM is back in the news, this time in California, where their dubious business practices have collapsed a self-insurance group for the construction industry. The name of the failed SIG is “Contractors Access Program – get it? “CAP.” As in, “your exposure is capped; you have nothing to worry about.” To paraphrase a legendary President, “we have nothing to fear except fear itself” – to which we must add, unfortunately, the legitimate fear of predatory insurance administrators.
New York regulators took a very hard line in their response to the insolvency of a dozen SIGs operated by CRM. Someone had to make up the deficit created by CRM’s mismanagement, so they decided to penalize all the SIGs operating by the rules. This harsh and rather expansive definition of “joint and several liability” led the well-managed SIGs to abandon the state.
At this point, it’s not clear how California is going to pursue the $38 million shortfall. They will probably go after the actual participants in CAP, but it’s highly unlikely they will find anywhere near the cash to cover the insurance deficit. Meanwhile, eleven of the SIG members are suing CRM, the agent who sold the product and the SIG’s board of directors (some of whom are SIG members). If you total up the premiums paid by those filing the lawsuit, you only come up with $5.2 million. So the scale of the losses – $38 million – appears large enough to put every one of the SIG members out of business.
Promises, Promises
One of the interesting aspects of the lawsuit is the way the plaintiffs have quoted the marketing spiel right back at the defendents. They were promised “superior underwriting, claims oversight, loss control and administration.” The “rigorous underwriting” would provide savings “while preserving the integrity of the program.” Potential clients were assured that their exposure was limited to the premiums paid (a complete misrepresentation of the nature of SIGs) and that reinsurance kicked in on any claim above $500,000. (In reality, there was no reinsurance.) The agent who sold this dubious product promised to function as “much more than a broker.” They brought “particular expertise” to the program and would serve as the clients’s “partners in risk management functions.” Some partner!
What apparently was not disclosed to members and prospects was the fact that the SIG was losing money almost from the very beginning. CRM had a fall out with the original broker, which resulted in $6 million of SIG funds being used to pay him off.
The CRM website is still up, where you can read about “the CRM advantage.” They have an advantage, all right: they take advantage of naive and trusting companies seeking a little edge in the competitive comp market. It’s a killer edge, to be sure.
Thanks to Work Comp Central (subscription required) for the heads up on this case.

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