San Francisco-based Industrial Indemnity Co. has announced plans to withdraw
from the Los Angeles workers compensation market, prompting concern among independent agent representatives whose members did much of their business with the subsidiary of Crum and Forster Insurance Cos., Basking Ridge, N.J.
Alan M. Parizo, chairman of the workers compensation committee of the Professional Insurance Agents of California and Nevada, said as the independent agents' largest workers compensation market in the state, "Crum and Forster has a unique responsibility to its policyholders and agents."Agent representatives said the move would place independent agents at a competitive disadvantage with direct-writing insurers and the state-run Workers Compensation Fund.
Chairman and chief executive officer Robert A. Puccinelli said the company was dropping the Los Angeles basin after 50 years because the area had become significantly unprofitable, with results worsening during the past several years.
Carl Smith, senior director of public relations for Industrial, denied rumors that Industrial had been ordered by to cut losses by Xerox Financial Services, which owns both Industrial and C&F. "Obviously, Xerox is seeking a better rate of return from its financial services," said Mr. Smith.
"So it is not as through we are doing this in a vacuum. But all of these actions were put together here (in San Francisco) and were based on a long period of study on what we need to do strategically to get the company on the right road."
A.M. Best, the Oldwick, N.J.-based independent rating service, placed Industrial Indemnity and 19 other Crum and Forster companies on a watch list on Dec. 14. Best's Watch List identifies companies which have shown deterioration in their profitability, leverage or liquidity results since year-end, where the decline is not deemed significant enough to warrant a reduction in their Best rating.
Industrial Indemnity's chairman attributed accelerated losses in Los Angeles "litigation and medical costs that are significantly higher than in other parts of California."
" . . . After years of trying, we have reluctantly concluded that Industrial cannot take its value-added workers compensation products and services to the Los Angeles market place at a fair profit," Mr. Puccinelli said.
Leonard Freeman, president of the Professional Insurance Agents of California and Nevada said the loss of Industrial will put a tremendous strain on the local workers compensation market, adding that the pullout is a red flag to the insurance industry.
"Industrial Indemnity is losing money on workers comp, and other carriers must have similar problems," said Mr. Freeman. "The strain being experienced by workers comp carriers will only be worsened by the pullout of Industrial Indemnity.
Industrial plans to shut down its Los Angeles workers compensation practice over the course of this year and transfer staff to its Orange County office.
Industrial's announcement came on Jan. 10. On the same day, officials at Crum and Forster's Basking Ridge, N.J., announced that the insurer was taking steps to improve its profitability in Texas by consolidating offices and narrowing its graphic focus to the metropolitan area.