Audit Clears Colorado’s Pinnacol
An audit committee has found no evidence of impropriety in Pinnacol Assurance’s incentive, expense and pay policies, but nevertheless recommended the Colorado-based workers’ compensation insurer “maintain a heightened sensitivity that reflects Pinnacol’s unique public nature while operating in the private sector.”
In 2010, Pinnacol received much criticism for a $318,000 golf trip it said was used as agent incentives. At the request of Gov. John Hickenlooper, a Special Committee of the Pinnacol Assurance Board of Directors examined the quasi-governmental workers’ compensation insurer’s business practices and policies.
The report from the two-month audit found neither incentives or executive compensation fell beyond the reasonable practices of a company charged with competing in the mutual insurance marketplace, but indicated specific areas Pinnacol could address to establish clear operational guidelines and ensure transparency.
Among the recommendations were that management should:
- Exercise heightened scrutiny to assure that expenditures are reasonable and do not create an appearance of impropriety or lavish spending;
- Review and recommend further changes to the policies and procedures for board travel and activities, the expense reimbursement policy, the board third-party gift policy, and the board Business Ethics and Conflicts of Interests Policies and Procedures. The audit committee also recommended prohibiting spouses/guests from accompanying board members on business travel at the company’s expense.
- Exert critical oversight of the process for determining incentive payout, including establishing performance goals, associated metrics and setting the appropriate weight for each metric.
- Examine contracts with lobbyists to augment them to ensure lobbyists are familiar with laws and regulations governing lobbyist activities, and that damages caused by lobbyist violations would be cause for contract termination.
- Require detailed receipts for all expenses incurred by lobbyists be included in invoices for reimbursement and approved by the general counsel.
- Investment and audit subcommittees review Pinnacol’s relationships with third-party consultants offering actuarial and financial advising services on a regular basis to ensure their adherence to the company’s business objectives.
The audit noted that there was a 173 percent increase in lobbying, and a 269 percent increase in communications expenditures from 2006 to 2010, with significant increases beginning in 2009. Auditors thought expenses in this area was potentially excessive.
Pinnacol President and CEO Ken Ross acknowledged that the audit did “address some specific and limited areas that are to be addressed by management,” and noted that work in the recommended areas is already underway.
“The committee’s recommendations brought to our attention areas of opportunity that will help us achieve our mission of protecting our policyholders and their workers. The findings also reinforce Pinnacol’s financial stability,” he said.
Pinnacol provides workers’ compensation insurance to approximately 55,000 policyholders in Colorado.
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