California Trainers Face Workers' Comp Decision

California Thoroughbred trainers who have not switched their workers' compensation insurance coverage to private carrier American International Group can do so March 1, but the broker who helped negotiate the industry's deal with the insurance giant doesn't think there'll be much, if any, response.

And John Patrick Unick, vice president for national sales for Maroevich, O'Shea and Coghlan of San Francisco, isn't happy about it.

"Frankly, there's a lot of misinformation out there," Unick said. "The trainers are the ones who are going to continue to pay the higher rates. There's not much I can do about it, short of walking the backstretches and talking to each individual trainer."

The open-enrollment day aims specifically at trainers who moved to the costly government-backed State Fund when Legion Insurance, the last private insurer to cover the industry's workers' compensation needs prior to AIG's arrival on the scene, stopped writing policies a year ago. Though most of those State Fund policies don't expire until July 1, AIG is trying to increase its program base by allowing transfers four months early.

Some have switched already, but Unick estimates about 100 Thoroughbred training stables currently with State Fund have not switched. Unick believes Peterson, McAnally and Tabor, the firm that represents the former Legion clients, is responsible.

Mark Frederickson, president of Peterson, McAnally and Tabor, denies that. He said a number of his clients don't qualify for the AIG program.

"What we are doing is evaluating each case to see if the rate differential is great enough" to warrant a switch, or whether it would be better to wait until July 1, Frederickson said.

The AIG program, started in December, anticipates replacing the State Fund as the nearly exclusive workers' comp carrier by July 1, when most of the industry's State Fund policyholders are expected to receive hefty rate increases with their renewal notices.

"We're looking at it by cash flow," Frederickson said. "(State Fund) allows them to make monthly payments depending on the number of employees they have at that time. AIG wants to estimate the total cost over the four-month period and they pay that amount (in a lump sum)."

Unick said Frederickson is using cash flow as an excuse, and that he has rebuffed Unick's offer to have their two firms underwrite the AIG policies and allow the trainers to continue to make the same monthly payments.

"It's a lot of work to switch those clients for just four months," Unick said. "It's more convenient for Peterson, McAnally and Tabor to wait for July 1. But it weakens the AIG program. And their clients continue to pay more for inferior coverage.

"It won't take much insurance-selling ability to sell the AIG program on July 1. I expect AIG would cover about 98% (of the training operations) when the State Fund policies expire."

Frederickson said he strongly supports AIG. "We really appreciate AIG opening the program," he said. "We had some clients change in December in thanks to the industry for doing something about workers' compensation, even though it cost them tens of thousands of dollars to do so. And I've got some clients who don't want to switch if it saves them $100 not to. These are independent businessmen."

The state's racetracks and horsemen have backed the AIG plan with up to $5 million in letters of credit protecting the insurer against catastrophic loss. As of mid-January, when the opening enrollment period ended, a little more than half of the state's 500 eligible trainers deserted the higher-priced State Fund for AIG, with annualized premiums for the new contracts totaling $6.2 million, Unick said.

Unick said AIG's base rate for 2003 is $31.72 per $100 of payroll for employees and $94.24 per jockey ride, well below the State Fund's $54.50 per $100 and $132.08 per ride. Most large stables, with reductions for claim history and other factors, pay in the neighborhood of 20% of payroll cost under AIG, he said.

For many trainers in the state, though, the improved rates are not enough. Several have relocated all or parts of their stable outside of the state, retired, or closed training operations.

Pico Perdomo, a trainer in Southern California for most of three decades, was the latest. He cited insurance costs as a major factor in announcing earlier in February he would shut down his 16-horse operation to become a bloodstock agent.