Wednesday, January 18, 2012

Pinnacol Privatization Again in the News

The Denver Post is reporting that business groups and others are upset with Pinnacol's ads touting the benefits of privatizing Pinnacol Assurance. It is asserted the ads violated an agreement not to lobby on the issue while the matter is under review by a task force. What the article points out is that Pinnacol is the state's insurer of last resort for high risk businesses. That is why Pinnacol was originally set up by the state of Colorado and then has grown to be the largest insurer in Colorado of workers compensation claims. This effort to privatize is not surprising. Pinnacol is large, apparently thriving, with ample funds available that in the past the state was interested in obtaining. My experience tells me that when a nonprofit becomes quite successful the entity wants to move out on its own. I saw that with Blue Cross Blue Shield when it became Anthem. There can be interest in expansion beyond the state borders and Pinnacol executives can operate unfettered by state oversight. In theory the state gets an investment apparently worth $340 million and a dividend every year. Of course Pinnacol's offers seem to vary which is, I suspect, just part of the negotiating. The real question I have is whether privatization might impair the very purpose for the state's interest which was to insure high risk ventures. The construction trades have many injuries and are costly to insure. Without state involvement might this endanger state businesses? Private insurers certainly have more freedom to operate than an entity with state oversight. Of course my other concern is valuation but that is negotiable.

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