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Workers comp fund spent $417,000 schmoozing clients

Private companies wine and dine their clients. Public agencies do not.

Somewhere in between is the quasi-public Workers Compensation Fund of Utah, which spent $417,000 on Delta Center suites, Jazz basketball and Grizzlies hockey tickets, food and other entertainment to attract business from 1993 to 1997, according to an audit by the Office of the Legislative Auditor General.While the Workers Compensation Fund of Utah has attracted more business and lowered the number of claims, an audit signed by Legislative Auditor Wayne Welsh and released Thursday found the following:

- Marketing, advertising and incentive expenses for the agents that sell WCFU insurance ballooned 43 percent each year between 1994 and 1996. Advertising has grown 58 percent each year; agent incentive expenses have grown 31 percent and marketing has increased 22 percent.

- WCFU used its resources to lobby legislators with tickets to sporting and performance events, golf outings, food and other entertainment.

- The most "notable" marketing expense was a $417,000 tab for entertainment expenses over five years - which included the lease on the Delta Center suite and accompanying Jazz and Grizzlies tickets, according to the audit. This accounted for 87 percent of WCFU's entertainment expenses during that time.

Contacts with other private, local workers compensation fund insurance writers showed they do not have Delta Center suite leases.

- Besides a standard sales commission, agents also receive incentives such as luxury trips, event tickets, agency bonuses and golf outings.

Since 1994, WCFU has sponsored three trips in which selected agents and a guest were involved. These trips totaled $348,948.

Other workers compensation insurers, locally and nationally, do not award incentives to the extent the WCFU does, according to auditors.

- Auditors believe other economic and industrywide factors have improved WCFU's financial status. Industrywide cost controlling measures, workplace safety anti-fraud programs and managed care programs have been adopted by WCFU.

- WCFU claims have decreased 26 percent since 1992, which reflects an average annual decrease of 9 percent during the past five years.

- WCFU overstated its financial situation in 1986, telling various committees it was "insolvent" and "bankrupt." Formally, the WCFU was neither insolvent nor bankrupt, the audit said.

"The WCFU has overstated their situation during this time, which additionally has overstated improvements they have made since."

WCFU executives also apparently restricted access to records, editing and clearing all information presented to legislative auditor's office. "This created a difficult auditing situation," according to the report.

"In addition, the WCFU delayed in providing us with some requested information, which ultimately held up the audit process for several months."

In a written response to the audit, WCFU President Lane Sum-mer-hays said he basically agreed with the findings, but made no apologies.

In fact, Summerhays said WCFU will continue its "efforts to be market leader" in the future. "We will continue to use marketing and advertising strategies which make sense."

The audit made no recommendations to the quasi-public agency.

Summerhays lauded drops in premium rates and "great strides" taken to meet the challenges of a competitive marketplace.

"The true winners in these last few years are the employers and the employees of the state," he wrote.

Premium rates have decreased by 46.5 percent since 1995, he said, and service to injured workers has improved.

Summerhays defended the group's marketing practices, writing that these marketing and advertising developments signaled the end of WCFU's "75-year history of passively waiting for customers to walk in the front door and wait to be helped."

Marketing tools like the use of the Delta Center suites and incentives for insurance agents are used by other companies too, such as Intermountain Health Care, Regence Blue Cross and Blue Shield and First Health.

It's all part of an "aggressive" solicitation of business and an effort to enhance customer service.

Summerhays also dismissed charges the group overstated its financial situation in the late 1980s and subsequently its financial improvements. It is "largely irrelevant" whether the company was actually bankrupt or insolvent, he wrote. Semantics aside, the company was financially impaired and was on the verge of depleting the entire surplus.

The WCFU is a quasi-governmental agency, designated so in 1988 because although the company operates privately, a question of state liability remains. Being a quasi-governmental organization in direct competition with private companies is a unique position for WCFU, according to the audit authors.

Another audit last spring showed that while state workers and executives have averaged 4.9 percent raises since 1990, Sum-mer-hays received 26 percent pay raises each year and makes twice as much money, at $226,000 a year, than workers insurance fund executives in surrounding Western states.

In his response to the comments about his salary and the salaries of his second-level executives, Sum-merhays said the Legislature determined the fund should be a quasi-public agency to be operated as a business, and therefore, the employees should be paid wages comparable to similar operations.