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January 23, 2012

Workers' comp

Workplace injuries in Maine have decreased by more than 40% over the last two decades as job sites have become safer and the number of dangerous jobs has declined. With fewer accidents, workers' compensation rates have simultaneously dropped, restricting growth potential for some in the insurance market here.

With more than 60% of the workers' comp market under its belt, MEMIC, the state's largest provider of workers' compensation insurance, is embarking on an expansion plan to push out its southern borders and launch multiple subsidiaries. The MEMIC Group, headquartered in Portland, will open two offices in New Jersey and in Pennsylvania this year, part of the company's plan to continue growing despite flat or declining workers' compensation rates. These offices will operate under MEMIC's 11-year-old subsidiary, MEMIC Indemnity Co., which is based in Manchester, N.H., and has two other offices in Glastonbury, Conn., and Albany, N.Y.

At the same time MEMIC is looking at opportunities beyond Maine, others are looking to increase market share here, according to a report from the Maine Bureau of Insurance. Among them is newcomer Great Falls Insurance Co. in Auburn, which opened in February of last year. CEO and President Gary Hall says he is unperturbed by declining workers' comp rates.

"The state of Maine gives us flexibility in pricing based on risk characteristics," says Hall. "Those declining rates mean companies are being safer and there are fewer injuries, and that's a good thing overall."

Great Falls focuses on small-to-medium employers, a market segment that bigger insurance companies sometimes overlook, says Hall. Great Falls hopes to capture 2% to 3% of Maine's $200 million workers' comp market within the next two to three years.

"We have patient investors," says Hall. "We expect to be doing $4.5 to $5 million in business by the end of next year."

Seeking new revenue

In 2012, Maine's workers' comp rates, which are set by the National Council on Compensation Insurance Inc. and approved by the state, will decline 7%, saving Maine companies millions of dollars.

While this is good for employers, MEMIC spokesman Michael Bourque says it raises challenges for MEMIC, which by statute cannot refuse coverage for any Maine company. "You have to deal with rate decreases; it is a reduction in revenue," he says. "And less revenue is always tough — that is part of our interest in expansion."

MEMIC President John Leonard says the new locations position MEMIC to move down the Eastern Seaboard, selling workers' compensation insurance — its sole insurance product. He says MEMIC can compete in markets outside of Maine because it has "distinguished itself as a unique carrier due to its focus on safety," and that MEMIC invests three times the industry standard on loss control — the term for reducing workplace injuries.

Part of MEMIC's expansion plan includes acquiring other companies. To form its latest subsidiary, the company in mid-December bought the Vermont business, Granite Manufacturers Mutual Insurance Co., which hadn't been active since the late 1960s. This company was being held by the state of Vermont, from which MEMIC purchased it for approximately $300,000, according to a government spokesman. MEMIC renamed the company MEMIC Casualty Co. and will run it from its Portland headquarters.

Bourque says MEMIC prefers to buy dormant companies rather than start from scratch because "it's less expensive and gives us a head start on regulatory issues. … It was a lot of work to start Indemnity, so this avoids some of that."

Leonard says eventually he'd like MEMIC to have three or four subsidiaries. To achieve this, MEMIC will continue to seek acquisitions of companies with good reputations at the right price. Subsidiaries are useful for workers' compensation insurers because they provide flexibility in rates, according to Leonard.

The creation of MEMIC, short for Maine Employers' Mutual Insurance Co., was authorized in 1992 by the Maine Legislature to help rein in an expensive workers' compensation market. MEMIC launched in 1993 after getting a $500,000 line of credit, and today its network, which employs about 250 people, insures more than 18,000 employers and their 250,000 employees. The company was set up as a private mutual insurance company, owned by its policyholders. As a guaranteed market for workers' comp insurance, the company cannot turn away any Maine company.

That is not the case with Great Falls. Hall says the company is very selective about its clientele, meeting with each prospective client to understand their company and commitment to safe work environments. That personalized attention is part of the business model that Great Falls expects will help it carve out a share of the market dominated by the big insurance providers.

"I'm not going to disparage MEMIC because I think they've done a good job, but if they write 62% of the business in the state, it's very difficult for them to get to 75%," says Hall. "There are always opportunities when one large player in the state controls a large percentage of the market. There are bound to be friends and enemies, and that creates opportunities for someone else."

In 2011, MEMIC had $120 million in written premiums in Maine, an amount that's grown 15% to 20% since the company was founded, Leonard says. Despite stable rates, the company's premiums grew 5% last year as more people worked longer hours, according to Bourque. Besides signing some new businesses in 2011, MEMIC also grew as its Maine-based clients grew their businesses out of state.

Leonard says he doesn't see great growth opportunities in Maine. Since the early 1990s, MEMIC has insured roughly the same number of Maine employers; the company consistently has held a little under two-thirds of the market share. In 2011, it had 61.5% of the Maine market; in 2004, that percentage was 65.4%.

"Although MEMIC has been successful in retaining business, other insurers are selectively increasing their market share," a 2011 report by the Bureau of Insurance says. Liberty Mutual Group is the next biggest provider, holding 10% of the market share in 2010, followed by WR Berkeley Corp., at 5.2%, and Travelers Group, at 3.9%, according to the report.

While MEMIC's revenues have remained relatively steady, its subsidiary, MEMIC Indemnity, has grown over the last decade, jumping more than 25% to $55 million in written premiums in the past year. "That's a result of increasing our territory," Bourque says. "It's not as if we're growing by 25% and staying in one place."

Editor Carol Coultas contributed to this report

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