When an insurance company’s policies are banned in three states due to its deceptive business practices, you know something isn’t right. When small businesses in a fourth state accuse them of operating a “reverse Ponzi scheme”, you might think we’re talking about small-time crooks on their way out of business – maybe even on their way to prison.
Well, think again. The insurance company in question, Berkshire Applied Underwriters, isn’t a fringe outfit – it’s a division of billionaire Warren Buffett’s massive Berkshire Hathaway Corp. And the stock-market bulletin The Street reassures us that Berkshire’s stock is still a “Buy” despite its little Workers Comp problem.
In June, California’s insurance commissioner found Berkshire had duped a small employer, Shasta Linen, while dodging required state review of its rates. Berkshire was forced to stop selling these policies in California. Regulators in Wisconsin and Vermont had already issued similar crackdowns.
Now a New York bicycle messenger firm, Breakaway Courier, has accused Berkshire of making insured businesses cover each others’ losses in what the courier called a “reverse Ponzi scheme.” According to Breakaway’s complaint:[C]ompanies are led to believe their premiums are being paid into “protected cells” and will eventually be returned to them. Instead, Berkshire Hathaway illegally siphons off premiums, leaving employers and injured workers without the funds that New York State requires to be available to cover losses.
Berkshire is still selling workers’ comp insurance in Illinois, among other states. Our Governor, Bruce Rauner, and major corporations in the Illinois Chamber of Commerce never tire of complaining that benefits for injured workers are a drag on the state’s economy. Perhaps they ought to take a look at the insurance companies instead.