Retailers Fund converting to Retailers Mutual

For nearly 25 years, Retailers Fund has been helping Michigan retail businesses save money on their workers’ compensation insurance. So, to a Lansing-area farm and garden equipment dealer (and years-long Michigan Retailers Association member), it made good business sense to begin participating in Retailers Fund.

But when the company applied for coverage, it learned it wasn’t eligible to participate in Retailers Fund. Because of state restrictions on the types of businesses that can be covered by the group self-funded program, the dealer’s application was rejected by state regulators who oversee the fund’s operation.

That experience is not unique. As MRA’s membership continues to grow and evolve, a greater percentage of MRA members find themselves ineligible for the work comp program because they fall outside the narrow list of business classifications that are allowed to be covered by Retailers Fund.

And even in instances when an applicant falls within a business classification served by Retailers Fund, the fund system requires regulators to determine on a case-by-case basis whether the business belongs in a different group fund.

“While Retailers Fund continues to be extremely successful both as a group fund and a member benefit, we’ve been concerned in recent years about the number of members who, because of state law, cannot access this premier insurance program,” said MRA’s James P. Hallan, president and chief operating officer, who also serves as administrator of Retailers Fund.

“Clearly, we need to move Retailers Fund to the next level to enable it to continue growing and help significantly more member businesses save money on their insurance costs.”

Next level
Moving Retailers Fund to the next level means converting it to a mutual insurance company, according to Hallan and MRA Chairman and CEO Larry Meyer.

“Operating as a mutual insurance company is a logical and necessary step that will enable us to better carry out our mission of providing the best insurance at the least cost to our members,” Meyer said.

Retailers Fund officials and attorneys are working with state regulators to convert Retailers Fund to Retailers Mutual Insurance Company as of January 1, 2006.

Attorneys from the Dykema Gossett PLLC law firm in Lansing, which handled a similar conversion in 2000 for the Michigan Construction Industry Mutual, are assisting MRA and Retailers Fund.

The move has been under serious study for more than a year and preliminary steps have been taken. MRA’s Board of Directors strongly supports the change, as do the directors of Michigan Retailers Services, Inc., which provides administrative services to Retailers Fund. The Retailers Fund Board of Trustees voted unanimously at its April 26 meeting to seek participant and state approval for the conversion.

Participants in Retailers Fund will be asked to authorize the change at the Annual Meeting being held on June 28 at the Park Place Hotel in Traverse City. Participants may cast their ballots in advance by mail. Ballots and detailed information on the proposed conversion will be mailed to participants in late May.

Conversion must also be approved by the state Workers’ Compensation Agency, which currently regulates Retailers Fund, and the state Office of Financial and Insurance Services, which will regulate the new mutual company.

Why mutual?
In a mutual insurance company, policyholders own the company and benefit from its success through desirable rates and dividends—much like Retailers Fund has operated for a quarter of a century.

But while current participants will hardly notice the change in structure, Hallan says, operating as a mutual insurance company will enable Retailers Fund to provide coverage to all member businesses that meet the company’s risk and other underwriting standards. Other important advantages of operating as a mutual include: greater flexibility in establishing rates and paying dividends; a broader array of investment options; and the potential to offer other product lines in the future.

“In short, operating as a mutual insurance company will enable us to grow the work comp program to serve more members and better serve existing and future participants,” said Hallan.

Also important to policyholders, Hallan points out, is relief from the current requirement that they be assessed beyond their regular premium in the event the fund could not pay claims out of its reserves. Retailers Fund has never had to assess members—but the provision is in state law for all group self-funded insurance programs.

“Although assessability has never been an issue with Retailers Fund, our competitors have used it to sell against us,” Hallan said. “As a mutual insurance company, policyholders will be free of the assessability provision.”

Smooth transition
If, as expected, participants and state regulators approve the conversion, there will be a smooth, seamless transition to the new company, Hallan says.

Michigan Retailers Services, Inc., will provide administrative and marketing services to the mutual, and claims will be handled by a third-party administrator, as they are currently. Because all current Retailers Fund insurance coverage expires December 31, 2005, new policies effective January 1, 2006, will be provided by the new mutual company.

In addition, existing trustees and those elected by Retailers Fund participants at this summer’s Annual Meeting will become the new company’s board of directors.

“A great deal of analysis and planning has gone into this process,” said Ray Rau, chair of the Retailers Fund Board of Trustees and president of Oscar Rau furniture in Frankenmuth. “All of us who have studied this believe it is essential for the future of our workers’ compensation insurance program and our growing MRA membership.”

Key Steps to Conversion

• Approval by the Retailers Fund Board of Trustees (approval granted on April 26).
• Participant approval by mail ballot or in person at the Retailers Fund Annual Meeting on June 28.
• Approval by state regulators in the Workers’ Compensation Agency and the state Office of Financial and Insurance Services.

State Regulation

Mutual insurance companies are regulated by different state laws and state agencies than group self-insured funds.

Group self-insured funds are regulated closely by state Workers’ Compensation Agency. The applicable regulations narrowly restrict the types of “like-minded” businesses that can be covered. Group self-insured funds are also closely regulated as to rates, dividends, investments and bylaws. Participants can be assessed additional costs if the fund falls into financial trouble.

Mutual insurance companies are regulated by state Office of Financial and Insurance Services, which makes sure the company’s finances are healthy and policyholders are protected. The applicable regulation for mutual insurers does not limit the types of businesses it can cover. Mutuals also have greater flexibility over rates, dividends, investments and product lines. Perhaps best of all, Retailers Mutual Insurance Company will have no assessability provision.