A new Chief Executive Officer (CEO) is in at Baton Rouge-based Stonetrust Commercial Insurance Company. Michael Dileo, most recently Senior Vice President of Operations at Stonetrust, has succeeded founding President Tim Dietrich, who led the company for 24 years. The insurer announced on its website that Stonetrust’s parent company, Dhandho Holdings, was the force behind the move – and that Dhandho CEO Mohnish Pabrai felt it was “an easy decision” for Dileo to take over.
Louisiana Comp Blog spoke to Dileo about the future of the company under his leadership and what’s behind the persistent soft market in Louisiana.
Comp Blog: For context, could you explain the trajectory of your career at Stonetrust?
Dileo: I started with Stonetrust in November 2010. I was hired initially as Vice President of Underwriting. In 2014, I took on additional responsibilities for claims operations, and in 2016 added marketing to my role. My title was Senior Vice President of Operations at that point.
Comp Blog: Regarding the health of the local market: nearly all Louisiana carriers are shrinking in written premium. Why do you think that is?
Dileo: We’ve had several years of rate decrease which has caused the market to become more competitive. We’ve also seen an increase in the number of companies voluntarily writing workers’ compensation in the state. The increased competition has reduced the ability for some carriers to write new premium compared to the prior trend. Retaining premium is also a challenge for many carriers in this environment. There aren’t many carriers growing market share currently and I’m sure many are seeing a reduction in their shares.
Comp Blog: With respect to the rate decrease piece, NCCI loss costs are a large factor in that. Some in the industry have complained that NCCI’s loss costs have failed to keep pace with increasing medical severity. Are you seeing that?
Dileo: The methodology that NCCI’s uses is based on claims that have been closed for a minimum of two years. Carriers in almost all markets are experiencing increases in medical cost severity. So it is somewhat questionable – we continue to see loss cost decreases despite these high medical costs. NCCI seems to be leaning heavily on the decrease in frequency that we’re seeing across the comp industry, including in Louisiana.
Comp Blog: Stonetrust (along with LWCC and LUBA Workers’ Comp) recently made the Baton Rouge Business Report’s Top 100 Private Companies list, in which it has been honored several times. Will Stonetrust’s growth strategy change under your leadership?
Dileo: We plan to expand to other states. In fact, we will officially expand into Nebraska beginning in September. We’re also looking at opportunities for additional growth to expand our regional footprint outside of the states in which we’re currently operating in 2018/2019. We’ll of course continue to compete in our core states – Louisiana, Mississippi, Arkansas, Oklahoma, and Texas – but we are also considering expanding in the outer states of that core region. That would include states like Missouri, Kansas, Tennessee and Alabama.
Comp Blog: Why did you choose Nebraska? It seems like a departure since it’s outside the region.
Dileo: Effective August 2016, we re-domesticated Stonetrust Commercial Insurance Company to the state of Nebraska for tax purposes. One of the stipulations for being re-domesticated there, even though our headquarters remains in Baton Rouge, is that we conduct business there.
Comp Blog: Given that Stonetrust already operates in five states, I’m interested in how you perceive the challenges of Louisiana’s market compared to the other states in which Stonetrust does business. What are some key differences?
Dileo: The market here as compared to our other states is as competitive, and in some instances, more competitive. There’s a significant number of carriers writing comp in Louisiana, which accounts for some of that. I do think we have higher attorney involvement in Louisiana which adds to claims costs. We’re also not keeping pace with some of the other states’ reform efforts to decrease cost severity. Louisiana also has the highest pharmacy costs compared to the other states we operate in.
Comp Blog: With that in mind, do you support the recent efforts to implement a closed pharmacy formulary in Louisiana then?
Dileo: Yes, I think we have to start with at least the ODG formulary. But if it’s possible to have a state-based formulary that would likely be more appropriate.
Comp Blog: Regarding your parent company Dhandho, what is its role in the day-to-day operation of Stonetrust?
Dileo: The Dhandho transaction concluded December 31st, 2014, and it immediately added $30 million in capital to the company. Since then, Dhandho’s involvement has primarily been handling the investments for the company. Dhandho owns Stonetrust Commercial Insurance Company and is very supportive of our goal – to be a strong and innovative regional workers’ compensation carrier. We’ve enjoyed the relationship with our parent company and are excited about our future plans for expansion.