Abuses Blamed in $25.2-Million Loss at CII Financial

CII Financial Inc., expressing total frustration with California’s workers’ compensation system, said the system’s problems led to a $25.2-million loss for the company in the fourth quarter compared with a year-earlier profit of $1.98 million.

The Burbank-based company provides workers’ compensation insurance through its California Indemnity Insurance Co. and other subsidiaries, and CII contends that rapidly growing fraud and other abuses of the system are making it impossible to profitably provide coverage.

“Reforms must be instituted immediately,” CII Chairman Joseph G. Havlick said in a statement.

CII’s loss in the quarter that ended Dec. 31 came despite a 33% increase in the company’s revenue, to $32.6 million from $24.6 million. The loss was expected because CII had announced in January that it would have to establish a $20-million reserve to cover claims losses.

But another workers’ compensation insurer, Pac Rim Holding Corp. in Encino, said its earnings rose sharply despite “a difficult year” for both the industry and the California economy.

Pac Rim, whose main unit is Pacific Rim Assurance Co., said its fourth-quarter profit jumped 31% from a year earlier, to $2.2 million from $1.68 million, on a 54% gain in revenue to $32.6 million from $21.2 million.

Stanley Braun, Pac Rim’s president, said in a statement that his company avoided losses by refusing to underwrite businesses “seriously affected by recession” and by keeping a tight rein on its own overhead costs. Pac Rim also enjoyed a “low level of psychiatric stress claims” from customers, which helped limit its claim losses, Braun said.

For all of 1991, CII lost $16.2 million, compared with a profit of $6.43 million in 1990, and its annual revenue rose 29%, to $112.2 million from $87.3 million.

Pac Rim’s profit for all of 1991 surged 54%, to $7.35 million from $4.76 million the previous year, and its annual revenue rose 43%, to $105.9 million from $74.1 million.

CII is by no means alone in complaining about the workers’ compensation system. Other insurers, including Pac Rim, and many business leaders have also criticized the rapid rise in fraud--particularly those related to “stress and strain” claims by workers--and in litigated claims for crimping the companies’ profits.

But CII is among the loudest critics of the system. Havlick said its legal costs also “have escalated drastically as we continue to maintain an activist approach to defending ourselves against frivolous lawsuits and suspect claims.”

CII said the problems affecting workers’ compensation are most severe in Los Angeles County and five other Southern California counties, where CII provides most of its coverage. As a result, CII said it is trying to curtail its coverage there and shift its business to Northern California.

The company said it also plans to move its headquarters to the Pleasanton-San Ramon area, which is southeast of Oakland, by July 1.

“The company will also continue to explore workers’ compensation opportunities in other states where conditions are more favorable,” Havlick said.