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Benicorp halts new sales to fix system woes: Complaints, losses mount at local health insurer

July 23, 2007

Locally based Benicorp Insurance Co. stunned health benefits professionals this month by distributing a simple memo.

The small provider of group health insurance and benefits administration services announced a moratorium on new business until the company resolved problems with a new claims-processing system.

"It's highly unusual," said Sheri Alexander, manager of employee benefits at Gregory & Appel, an Indianapolis insurance brokerage.

More than 180 complaints have been filed against Benicorp since Jan. 1, according to records at the Indiana Department of Insurance. Benicorp has settled all but 35.

In the meantime, A.M. Best Co., the most influential insurance ratings agency, cut Benicorp's financial strength grade and then stopped covering the company after Benicorp officials asked to be removed from its ratings process.

Benicorp officials didn't return phone calls seeking comment. IBJ did obtain a copy of its e-mail memo dated July 3 and headed, "Moratorium on New Business."

In the memo, President Kevin Hart wrote, "Benicorp is taking this action until further notice to give the company time to ensure that it provides the highest level of customer service and responsiveness to its existing customers."

Benicorp, which was founded in Indianapolis in 1987, was bought by Chicagoarea investors in early 2005 for $32 million. At that time, it had 115 employees.

It is licensed to sell group health and life insurance in 28 states but does most of its business in Indiana, Nebraska, Nevada, Missouri and Georgia. In 2006, Benicorp pulled in $95 million in premiums but also sustained a $9 million loss.

Benicorp installed a new claim system in 2006. In the second half of the year, local health care providers say, Benicorp became habitually late in paying submitted claims.

This year, Benicorp is telling providers it overpaid many of those late claims and now is asking for money back.

"It makes an insurance company look bad," said Lahna Miller, billing manager at First Source Laboratory Services in Fishers.

The lab, which does blood, urine and other tests, began complaining to the Insurance Department in May-when it had November bills that Benicorp had not paid.

In total, First Source filed 46 complaints about Benicorp-more than any other provider this year. Within a week after complaining, Miller said, it started getting checks from Benicorp.

Not everyone is complaining, however. Community Health Network has not noticed a significant problem with delays from Benicorp, said Dave Delaney, Community's vice president for managed care.

"When payers, both large and small, put in a new computer system, we frequently run into circumstances with them," Delaney said. "It's a credit to Benicorp if they are, in fact, holding off on new business until they get these bugs worked out."

It's unclear if Benicorp is losing customers because of its system problems. One local insurance broker, who declined to be named, said he is shifting his two clients who used Benicorp to other health benefits providers.

After its acquisition by investors, who call themselves McKee Heritage Holding Corp., Benicorp began offering "extremely aggressive" rates, Alexander said, and wooed several clients away from other carriers. Benicorp specializes in providing health care benefits for companies with fewer than 50 employees.

Benicorp's attempts to grow came at a time when economies of scale are increasingly important in the health insurance industry. They're especially important in Indiana, where Anthem Insurance Co. holds a 35 percent market share - and an even larger stake among small employers.

"I'm disappointed to see a local insurance company fall on hard times because, with all of the consolidation in the industry, we have less competition," said Greg Wright, a local insurance broker.

State Insurance Commissioner Jim Atterholt said he could not comment on Benicorp and could not say whether the Insurance Department is investigating the company.

But insurance regulators certainly haven't missed the dip in Benicorp's finances. Its loss last year slashed its capital surplus funds to $13.7 million from $19.5 million the year before. Earlier this year, McKee Heritage pumped $6 million into Benicorp.

"The first thing regulators look for is the capital and reserves," said Carl Austin, an A.M. Best analyst.

In April, Austin and his colleagues dealt Benicorp a two-notch drop in its financialstrength rating, which is designed to reflect a company's long-term ability to pay claims. Best assigned a B- rating to Benicorp and its sister company, Illinois-based Municipal Insurance Company of America.

Hart, who oversees both insurance companies, objected to Best's rating in a written statement and asked Best to no longer publish ratings for Municipal and Benicorp.

Hart explained that Benicorp showed a loss because it had yet to record overpayment collections. He also noted that its capital surplus passed muster with the National Association of Insurance Commissioners.
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