Applied Underwriters Issued Cease & Desist Order

Major news has come out of California, where Applied Underwriters has been ordered to cease and desist in selling its EquityComp and some of its SolutionOne insurance products. This is the result of a more than year-long legal battle over Applied’s use of unfiled, unapproved side agreements that had been used to determine an employer’s workers compensation premium. California is the third state to halt the sale of Applied products.

The EquityComp product first faced challenges in April 2015 when a California employer raised questions with the state’s Department of Insurance. The employer alleged that Applied Underwriters, a subsidiary of Berkshire Hathaway, had used an undisclosed formula to push rate hikes and to adjust loss development factors. These formulas, employers say, were difficult to understand and included varying rates and calculations, leading to substantially higher insurance payments with little to no justification. The core of the issue lies in the reinsurance participation agreement (RPA) that employers are required to sign in order to participate in the EquityComp program. While the actual EquityComp policies were written with California Insurance Company (CIC), employers were required to sign an RPA through Applied Underwriters Captive Risk Assurance Company (AUCRA). This RPA, employers argued, is what actually determined the premium they paid, and therefore it should have been filed and approved by the state.

Ultimately, California Insurance Commissioner Dave Jones agreed, finding that Applied used an illegal, unfiled reinsurance participation agreement to skirt government oversight and charge higher premiums than would otherwise be allowed.  "Insurance companies are required to file rates and terms so we can make sure they are complying with the law,” Commissioner Jones said. “These filing requirements were put in place to protect businesses from insurers seeking to take advantage of their market power…”

It is now illegal for Applied Underwriters and its brokers to sell or renew any EquityComp and some SolutionOne products in California.