A state audit committee recently confirmed some of the worst allegations that had been flying around the Colorado media about Pinnacol Assurance, the state's quasi-government health insurance company. The committee's report cited lavish bonuses for executives who also received generous travel and entertainment expenses.
Auditors said that since 1995, Pinnacol had paid bonuses 80 percent of the time though company management failed to hit performance targets. The board of directors for the state's workers' compensation insurer says it has adjusted its bonus practices and will review the audit to take further steps to rein in high-flying compensation for its executives.
However, even as the company stated it would tighten its belt, both Pinnacol's CEO and Board Chairman defended their company's compensation policies to the Denver Daily News as necessary in order for it to remain competitive in the industry.
The audit revealed that executives are due up to $4.3 million over two years if state lawmakers significantly change the way the quasi-governmental agency functions. Executives will receive guaranteed bonuses and benefits if the state takes control of operations and current management is let go.
The audit also revealed more than $1.9 million in employee bonuses from 2007 to 2009, as well as travel reimbursements of up to $500 per night for accommodations in luxury hotels ? a reimbursement rate violating the company's own travel expense policies. That policy was violated 75 percent of the time, the audit committee found.
Auditors found that the base compensation offered to Pinnacol executives was in line with similar quasi-governmental agencies, but that the bonuses paid were significantly higher than in other agencies and in similar markets.
Pinnacol held about 55,000 workers' compensation policies in 2009, accounting for more than half of the Colorado's workers' compensation insurance market. The agency has been the state's largest workers' compensation insurer since 1996.
Last year, the company collected about $399 million in premiums, while paying out about $256 million in claims. Pinnacol has an over $700 million surplus, according to the state's audit.
Pinnacol provides insurance to employers that struggle to purchase private plans.