February 25, 2008
Safe at work | Talking workers' comp with John Leonard, president and CEO of Portland-based insurer The MEMIC Group
By Whit Richardson
In the early 1990s, Maine's workers' compensation market was a wreck. Workplace injuries were well beyond the national average, costs were spiraling out of control and private insurers were quitting the state in droves. Fixing the collapse was a priority for lawmakers, and the state Legislature in 1992 passed sweeping reforms to keep costs manageable ˆ and workers safe.
As part of that legislation, the state in 1993 created Maine Employers Mutual Insurance Company ˆ now known as The MEMIC Group ˆ in 1993. Headquartered in Portland, the private company's mission was to bring affordable workers' comp insurance to Maine businesses. In the 15 years since The MEMIC Group was founded, the cost of workers' comp insurance for businesses has decreased 32% and the state's injury rate has decreased 35%. It now insures 22,000 employers in New England.
With that success under its belt, the company created to solve Maine's workers' comp crisis in recent years has set its sights beyond Maine. Today, its subsidiary, MEMIC Indemnity Co., is licensed to offer workers' comp insurance in 42 states, and last year opened offices in Albany and Connecticut. To facilitate this growth, MEMIC has been adding jobs at its headquarters in Portland and in January purchased for $4 million a building on Commercial Street adjacent to its current headquarters that eventually will become part of MEMIC's campus.
Mainebiz sat down with John Leonard, MEMIC's president and CEO since 1993, to discuss the state of workers' comp in Maine, MEMIC's expansion strategy and his take on Maine's new superintendent of insurance. An edited transcript follows.
Mainebiz: What was the workers' compensation scene like in Maine in the early 1990s?
John Leonard: If you go back to the history of workers' comp in Maine it was nothing less than chaotic as far as 1993. In fact, the situation was so bad in the late 80s and early 90s that it really jeopardized the future of businesses in the state, to the extent that the governor at the time, John McKernan, called upon the Legislature to make major changes in terms of a legislative fix for the workers' comp problem.
To illustrate how bad things were at the time, the premiums that people were paying for workers' comp were about double the national average, and at the same time injuries to workers in the state of Maine were running again about double the national average, so clearly it was a situation screaming to be fixed. Along came the 1992 Legislature that took a very comprehensive look at what was going on in Maine, and how the situation could be improved. And it put through a major reform that adjusted several elements of the workers' comp program in the state. In addition to adjusting for benefits and making other significant changes to the administration of workers' comp program in the state, it allowed for the creation of a dedicated company that would have full responsibility for workers' comp ˆ in other words, that's all we would do. We would not be a carrier for another state, or a carrier worried about automobiles. This was a company that was dedicated to workers' comp.
What was it like in the beginning?
The first few months were really a struggle. I mean we were starting from scratch. We had no particular capitalization. We borrowed $500,000 from Fleet ˆ that was nothing. And we just made our way on cash flow in those early months.
By the summer of 1993, we really had a handle on what we were doing. We were handling 95% of the workers' comp business in the state, for the simple reason that all other carriers for the most part had left the state and therefore we were the only carrier left.
What led to the exodus of workers' comp carriers?
There was a freeze on premiums, there was a freeze on rates that the companies could charge, so companies that were about to write workers' comp in the state of Maine were almost guaranteed a loss. There was no way to make money. So the reform adjusted a lot of that imbalance, and of course we benefited from it. Other carriers were slow to realize things had changed in Maine. So for the next two to three years, we were pretty much the only market left in the state of Maine.
By 1996, the situation had improved dramatically, and a lot of the national carriers came back into Maine, and MEMIC at that point in time faced some fairly stiff competition. But despite the competition, we had really gained the favor of a lot of Maine businesses because of our service commitment to safety, so despite the level of participation from our competitors, the vast majority of companies in Maine stayed with MEMIC. And it's continued that way today. Right now we write about two-thirds of the commercial premiums written in the state, so it's the lion share of the business.
I read in one of your press releases that the state injury rate has decreased 35% since MEMIC was founded. How does the creation of a company like MEMIC affect how many workers are injured on the job?
Prior to MEMIC, there was virtually no loss control service provided to companies in the state of Maine. One thing we committed ourselves to in the early part of 1993 was to really use the culture of safety throughout state. One of the major initiatives we've had from the beginning is hiring industry experts who go out and work with companies to show them a better and safer way to do things.
Right now MEMIC has nearly 40 loss-control professionals who are dedicated to specific industries. For example, in the health care industry, we have people who are health care professionals, primarily nurses, who go out and work with rest homes and hospitals and practitioners to make sure that the way they're going about doing their business meets the contemporary state standards that are available in the country right now.
In the area of construction, we have former construction workers, people who really know their business and know how to teach others about how to communicate effectively, and they're working with construction companies to build a better safety culture among those companies. Those are just two examples. That wasn't happening prior to 93. That was a major, major undertaking of the company now and has been for the past 15 years. As our policy holders have developed a greater sense of safety, the injury rate goes down. As you pointed out, it's now down about 35% over the past 15 years.
MEMIC opened offices in Connecticut and New York last year and is now licensed to provide workers' comp insurance in 42 states. What was the strategy behind MEMIC's decision to expand?
The first thing that it's important to realize is that in order to do business in a state, you have to be licensed by that state. It's like not an automobile license, where you can have a Maine license and can drive wherever you want. In order to do business in any other state, we have to be licensed in that state. MEMIC was organized specifically for the state of Maine, whereas businesses grow and expand, they have out of state locations, and we were finding that it was difficult for us to retain those accounts because we couldn't accommodate somebody who moved into New Hampshire or Connecticut. They would go with a carrier who was in multi-state locations. So we kind of followed our policy holders: As they expanded, we needed to expand.
The second thing is, we also knew that we were doing the job the right way, and that this can be profitable. So there was a profit motive for us, and there certainly was an accommodation of our policy holders behind our decision to go ahead and expand into other states.
What's it like being the major workers' comp carrier in a state like Maine, which is host to what the Bureau of Labor Statistics says are dangerous jobs like logging and fishing?
Yeah, it really increases the need for vigilance in the area of loss control. You bring up what formally was a very dangerous occupation, which is logging, and we have worked very hard with logging companies throughout the state of Maine to really develop a better methodology for safety in the workplace. Since 1996, we haven't received what I would consider a truly serious or catastrophic loss out of that industry. That is an industry that prior to 1993 would develop routinely significant losses on an annual basis. It doesn't mean that the job is done. But as you go through the different occupations in Maine, clearly there is a greater challenge in the state of Maine due to the nature of our industry, and perhaps it isn't reflected in other states, where maybe they're more service oriented than we are here.
Why is The MEMIC Group's subsidiary, MEMIC Indemnity Co., based in New Hampshire?
Well, it's a product of the legislation that was passed that would enable us to create a company that wouldn't compete with MEMIC. In other words, when that company was formed, it was formed as a subsidiary of MEMIC, but with the caveat it cannot be licensed in Maine for the simple reason that nobody wanted that company to cherry pick the business that otherwise was going to MEMIC. It wasn't a fear that I thought was realistic, but you got to live with what comes your way sometimes. So with that, we said, "Well, how far do we have to go to get outside the state of Maine?" New Hampshire was the natural location.
You just purchased a building next to your current one for $4 million. What's your plan for the new property?
I think we'll lease the building out to high-quality tenants when vacancy occurs, but over time as years move on and our needs expand, you'll see a turnover within the building from those people who are tenants to those people who are MEMIC employees. It will be a slow transition but the ownership of that property gives us that flexibility, which we really look forward to.
What will the expansion in Portland look like?
I think over the next five years we're talking about dozens of employees. It's a factor of how fast we're able to grow profitably. What type of jobs are they? Well, all of our information technology is handled out of Portland. So any growth in IT area will occur here. Some of the administrative work, primarily in the financial area. We've already been required to add some tax experts because we're now doing tax filings in 42 different states. So it's backroom support work that's ongoing that will create the job opportunities here in Portland.
How does Maine's current workers' comp environment compare to other states?
The cost for insurance in the state of Maine you'd find in about the middle, if you took a look at averages and so forth around the country. The last survey I read put us ranked 27th, which I think is a great place to be, because it shows a balance between the most expensive and the one that has the lowest benefits. When you take a look at the benefits paid to injured workers in Maine, again you're going to find that it's somewhere near the average, which I think is a tremendous credit to the Legislature. I think it's a tremendous credit to [Gov. John Baldacci], who's been very supportive of a strong and stable workers' comp environment over the life of his administration. And basically, I'm very bullish on the Maine market right now. I think [workers' comp is] an asset rather than a detriment to business.
What's your opinion of Mila Kofman, the incoming superintendent of Maine's Bureau of Insurance?
She's inheriting the finest staff I'm aware of and am really encouraged by the fact that she was down visiting with me in this room two days after she arrived in Maine. She arrived in Maine on Feb. 5 and she came down and spent about two hours with me the morning of Feb. 7. I would characterize her as extremely articulate. I think she brings a whole new dimension to the state of Maine in terms of her background and her abilities. I think she's clearly going to be a major addition to that department. I'm very, very bullish on Mila.
As part of that legislation, the state in 1993 created Maine Employers Mutual Insurance Company ˆ now known as The MEMIC Group ˆ in 1993. Headquartered in Portland, the private company's mission was to bring affordable workers' comp insurance to Maine businesses. In the 15 years since The MEMIC Group was founded, the cost of workers' comp insurance for businesses has decreased 32% and the state's injury rate has decreased 35%. It now insures 22,000 employers in New England.
With that success under its belt, the company created to solve Maine's workers' comp crisis in recent years has set its sights beyond Maine. Today, its subsidiary, MEMIC Indemnity Co., is licensed to offer workers' comp insurance in 42 states, and last year opened offices in Albany and Connecticut. To facilitate this growth, MEMIC has been adding jobs at its headquarters in Portland and in January purchased for $4 million a building on Commercial Street adjacent to its current headquarters that eventually will become part of MEMIC's campus.
Mainebiz sat down with John Leonard, MEMIC's president and CEO since 1993, to discuss the state of workers' comp in Maine, MEMIC's expansion strategy and his take on Maine's new superintendent of insurance. An edited transcript follows.
Mainebiz: What was the workers' compensation scene like in Maine in the early 1990s?
John Leonard: If you go back to the history of workers' comp in Maine it was nothing less than chaotic as far as 1993. In fact, the situation was so bad in the late 80s and early 90s that it really jeopardized the future of businesses in the state, to the extent that the governor at the time, John McKernan, called upon the Legislature to make major changes in terms of a legislative fix for the workers' comp problem.
To illustrate how bad things were at the time, the premiums that people were paying for workers' comp were about double the national average, and at the same time injuries to workers in the state of Maine were running again about double the national average, so clearly it was a situation screaming to be fixed. Along came the 1992 Legislature that took a very comprehensive look at what was going on in Maine, and how the situation could be improved. And it put through a major reform that adjusted several elements of the workers' comp program in the state. In addition to adjusting for benefits and making other significant changes to the administration of workers' comp program in the state, it allowed for the creation of a dedicated company that would have full responsibility for workers' comp ˆ in other words, that's all we would do. We would not be a carrier for another state, or a carrier worried about automobiles. This was a company that was dedicated to workers' comp.
What was it like in the beginning?
The first few months were really a struggle. I mean we were starting from scratch. We had no particular capitalization. We borrowed $500,000 from Fleet ˆ that was nothing. And we just made our way on cash flow in those early months.
By the summer of 1993, we really had a handle on what we were doing. We were handling 95% of the workers' comp business in the state, for the simple reason that all other carriers for the most part had left the state and therefore we were the only carrier left.
What led to the exodus of workers' comp carriers?
There was a freeze on premiums, there was a freeze on rates that the companies could charge, so companies that were about to write workers' comp in the state of Maine were almost guaranteed a loss. There was no way to make money. So the reform adjusted a lot of that imbalance, and of course we benefited from it. Other carriers were slow to realize things had changed in Maine. So for the next two to three years, we were pretty much the only market left in the state of Maine.
By 1996, the situation had improved dramatically, and a lot of the national carriers came back into Maine, and MEMIC at that point in time faced some fairly stiff competition. But despite the competition, we had really gained the favor of a lot of Maine businesses because of our service commitment to safety, so despite the level of participation from our competitors, the vast majority of companies in Maine stayed with MEMIC. And it's continued that way today. Right now we write about two-thirds of the commercial premiums written in the state, so it's the lion share of the business.
I read in one of your press releases that the state injury rate has decreased 35% since MEMIC was founded. How does the creation of a company like MEMIC affect how many workers are injured on the job?
Prior to MEMIC, there was virtually no loss control service provided to companies in the state of Maine. One thing we committed ourselves to in the early part of 1993 was to really use the culture of safety throughout state. One of the major initiatives we've had from the beginning is hiring industry experts who go out and work with companies to show them a better and safer way to do things.
Right now MEMIC has nearly 40 loss-control professionals who are dedicated to specific industries. For example, in the health care industry, we have people who are health care professionals, primarily nurses, who go out and work with rest homes and hospitals and practitioners to make sure that the way they're going about doing their business meets the contemporary state standards that are available in the country right now.
In the area of construction, we have former construction workers, people who really know their business and know how to teach others about how to communicate effectively, and they're working with construction companies to build a better safety culture among those companies. Those are just two examples. That wasn't happening prior to 93. That was a major, major undertaking of the company now and has been for the past 15 years. As our policy holders have developed a greater sense of safety, the injury rate goes down. As you pointed out, it's now down about 35% over the past 15 years.
MEMIC opened offices in Connecticut and New York last year and is now licensed to provide workers' comp insurance in 42 states. What was the strategy behind MEMIC's decision to expand?
The first thing that it's important to realize is that in order to do business in a state, you have to be licensed by that state. It's like not an automobile license, where you can have a Maine license and can drive wherever you want. In order to do business in any other state, we have to be licensed in that state. MEMIC was organized specifically for the state of Maine, whereas businesses grow and expand, they have out of state locations, and we were finding that it was difficult for us to retain those accounts because we couldn't accommodate somebody who moved into New Hampshire or Connecticut. They would go with a carrier who was in multi-state locations. So we kind of followed our policy holders: As they expanded, we needed to expand.
The second thing is, we also knew that we were doing the job the right way, and that this can be profitable. So there was a profit motive for us, and there certainly was an accommodation of our policy holders behind our decision to go ahead and expand into other states.
What's it like being the major workers' comp carrier in a state like Maine, which is host to what the Bureau of Labor Statistics says are dangerous jobs like logging and fishing?
Yeah, it really increases the need for vigilance in the area of loss control. You bring up what formally was a very dangerous occupation, which is logging, and we have worked very hard with logging companies throughout the state of Maine to really develop a better methodology for safety in the workplace. Since 1996, we haven't received what I would consider a truly serious or catastrophic loss out of that industry. That is an industry that prior to 1993 would develop routinely significant losses on an annual basis. It doesn't mean that the job is done. But as you go through the different occupations in Maine, clearly there is a greater challenge in the state of Maine due to the nature of our industry, and perhaps it isn't reflected in other states, where maybe they're more service oriented than we are here.
Why is The MEMIC Group's subsidiary, MEMIC Indemnity Co., based in New Hampshire?
Well, it's a product of the legislation that was passed that would enable us to create a company that wouldn't compete with MEMIC. In other words, when that company was formed, it was formed as a subsidiary of MEMIC, but with the caveat it cannot be licensed in Maine for the simple reason that nobody wanted that company to cherry pick the business that otherwise was going to MEMIC. It wasn't a fear that I thought was realistic, but you got to live with what comes your way sometimes. So with that, we said, "Well, how far do we have to go to get outside the state of Maine?" New Hampshire was the natural location.
You just purchased a building next to your current one for $4 million. What's your plan for the new property?
I think we'll lease the building out to high-quality tenants when vacancy occurs, but over time as years move on and our needs expand, you'll see a turnover within the building from those people who are tenants to those people who are MEMIC employees. It will be a slow transition but the ownership of that property gives us that flexibility, which we really look forward to.
What will the expansion in Portland look like?
I think over the next five years we're talking about dozens of employees. It's a factor of how fast we're able to grow profitably. What type of jobs are they? Well, all of our information technology is handled out of Portland. So any growth in IT area will occur here. Some of the administrative work, primarily in the financial area. We've already been required to add some tax experts because we're now doing tax filings in 42 different states. So it's backroom support work that's ongoing that will create the job opportunities here in Portland.
How does Maine's current workers' comp environment compare to other states?
The cost for insurance in the state of Maine you'd find in about the middle, if you took a look at averages and so forth around the country. The last survey I read put us ranked 27th, which I think is a great place to be, because it shows a balance between the most expensive and the one that has the lowest benefits. When you take a look at the benefits paid to injured workers in Maine, again you're going to find that it's somewhere near the average, which I think is a tremendous credit to the Legislature. I think it's a tremendous credit to [Gov. John Baldacci], who's been very supportive of a strong and stable workers' comp environment over the life of his administration. And basically, I'm very bullish on the Maine market right now. I think [workers' comp is] an asset rather than a detriment to business.
What's your opinion of Mila Kofman, the incoming superintendent of Maine's Bureau of Insurance?
She's inheriting the finest staff I'm aware of and am really encouraged by the fact that she was down visiting with me in this room two days after she arrived in Maine. She arrived in Maine on Feb. 5 and she came down and spent about two hours with me the morning of Feb. 7. I would characterize her as extremely articulate. I think she brings a whole new dimension to the state of Maine in terms of her background and her abilities. I think she's clearly going to be a major addition to that department. I'm very, very bullish on Mila.
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