“This guy (Mr. Coutu) gets a fat bonus to run off the company by reneging on agreements and extorting policyholders,” the policyholder charged.

Kenning Financial Advisors referred all questions to Kemper representative Linda Kingman, who objected to a report using the views of “one disgruntled policyholder” and said the firm is awaiting a decision by the Illinois Insurance Department on its runoff plan.

However, Marsh's move to issue a letter indicates many policyholders are impacted. “The rejection of dividends affects Kemper's ability to offset some or all of additional premiums now due under loss-sensitive programs,” Marsh wrote. “Deferred balances, historically offset by the initial dividend, will become due and payable. Policyholders are already receiving bills for any additional premiums due as a result of this decision.”

Marsh said Kemper might try to buy back policies, substitute another insurer through novation, or convince insureds to “accept a settlement at less than what you perceive is fair value.” The broker said it is preparing a white paper to help clients understand their options and also advised they consult an attorney.

Marsh noted that the main Kemper carrier Lumbermans Mutual Casualty Company reported that Kenning executives would be compensated by a base fee and target bonuses in a still undisclosed runoff plan. Since Lumberman is owned by its policyholders, Marsh suggested that the interest of the state and Kemper management might be misaligned since the owners of the company are also its creditors.

Jack Messmore, a representative for the Illinois Insurance Department, said of the possibility of legal action: “There are lawsuits every day involving policyholders and insurance companies. Those suits would have to be worked out in the courts.”

Kemper, in an e-mailed statement, said the company's financial situation “has forced us to take some actions we would rather not have taken. We have had to close offices around the country and reduce our workforce by thousands of people.”

Kemper added: “Our board of directors has determined we can no longer pay discretionary dividends, which some policyholders may have anticipated would reduce their premium expenses. Further, the Illinois Insurance Code prohibits the payment of dividends if an insurance company does not have sufficient earned surplus.”

Kemper said that “as of year-end 2003, Kemper's earned surplus was negative and remains so. We have undertaken aggressive expense control initiatives and are in discussions with some of our insureds to 'buy back' their policies in order to reduce Kemper's future loss exposure. These are necessary steps to preserve the companys assets for the payment of claims.”

Reproduced from National Underwriter Edition, May 28, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.