CAMICO at 20: out of a crisis--a member-driven success story.

In retrospect, the cancellation notice the Imperial Casualty Insurance Company bestowed on CalCPA in fall 1986 was CAMICO's birth certificate.

The notice ignited a chain of events that lasted about nine months and led to the creation of California Accountants Mutual Insurance Company, now known as CAMICO.

As CalCPA's director of business operations at the time, I can recall the galvanizing effect of that simple document, which notified CalCPA's insurance committee leaders that CalCPA members soon would be without professional liability coverage.

Almost overnight, more than 1,700 accounting firms were threatened with exposure to the risk of lawsuits from clients and third parties that relied on their expertise, advice and reports. It was the kind of news that you can't quite comprehend when you first receive it.

CAMICO Chair Lou Barbich, CPA, who was CalCPA president in 1986, immediately assembled a team to evaluate the problem and develop a solution. He was joined by other CalCPA leaders, including Ken Ashcraft, CPA, who later joined CAMICO's original board of directors; Jim Kurtz, then CalCPA executive director; and myself.

A feasibility study confirmed the insurance industry's low appetite for losses and a rapid retraction from writing professional liability policies.

The odds of finding another carrier to provide group coverage at reasonable rates was a long shot.

With time running out and no prospects for replacement coverage, CalCPA leaders realized they had to do something.

The story of CAMICO's birth and rise to the top of a business insurance category shows the good that can happen when crisis meets opportunity.

ENTREPRENEURIAL, PRACTICAL

After it became clear that reasonably priced replacement coverage wasn't available, CalCPA decided on a bold course: form a company that would underwrite and provide liability insurance and risk management services to CPAs in California. The company would be owned and operated by CPAs.

The idea was entrepreneurial and practical: to pool funds and CPA intellectual capital with the goal of partnering with policyholders in a risk management program that would enable CPAs to learn from one another.

An informal board made up of CalCPA leaders and staff was created, which fanned out across the state to secure commitments from California accountants to fund the company's launch.

Whether it was the persuasiveness of our pitch or the dire nature of the times that attracted policyholders to CAMICO, organizers succeeded in building the new insurance company from scratch.

In just a few months, about 1,400 accounting firms signed on with CAMICO, paying their annual premiums in advance, as well as certificates of contributions that helped finance company operations.

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Only a few days before the cancellation of CalCPA's insurance policy--June 24, 1986--CAMICO received its certificate of authority to operate.

A SOURCE OF EXPERTISE

CAMICO's initial focus on helping CPAs avoid or minimize the damages from claims quickly produced results and led to the company's evolution into a national repository of risk management expertise focused on accounting and tax issues.

There was a general lack of knowledge among insurers at the time about how to prepare CPAs for practice problems associated with new lines of business. CAMICO's purpose from the beginning was to fill that knowledge gap.

By advising policyholders to adopt ever-higher standards of professionalism and risk awareness, CAMICO contributed to its members' growth and the growth of its members' clients.

PRODUCT AND SERVICE INNOVATORS

CAMICO continues to educate CPA policyholders as it expands into new practice areas. The company keeps pace by providing new and innovative products and services.

For example, CAMICO pioneered:

* the use of engagement letters for non-audit work;

* the development of sample engagement letters;

* review and assistance with engagement letters;

* loss prevention advice hotlines;

* proactive assistance with incidents before they become claims;

* loss prevention classes and continuing education for policyholders;

* aggregate policy limits for CPA professional liability insurance; and

* free Extended Reporting Period policies to retiring sole practitioners.

CAMICO also differs from other carriers through its work in defending policyholders when they are sued. Core to CAMICO's philosophy is the belief that policyholders deserve to have their professional reputations protected, especially when a claim is frivolous or undeserved. CAMICO is less likely to settle a claim just because it's the easy way out, unlike many general insurance companies.

Loss prevention and risk management programs form the core of CAMICO's service, which focuses on providing solutions and tools that CPAs can use to address their liability problems.

The company recently launched a redesigned website that more effectively connects policyholders to knowledge and documents stored online.

CAMICO also has created new coverage features, including a "known claims" benefit, which is activated when a policyholder with a known claim inadvertently fails to report it.

RAPID EXPANSION

In 1995, CAMICO embarked on an ambitious national expansion campaign, seeking to export the knowledge and expertise it had gained in California over the previous nine years to the rest of the United States.

The company wrote a policy in December 1995 in Oregon, its first policy outside California. From there it moved across the Western United States, promoting and positioning itself with state CPA societies to sponsor the company as a member benefit.

Within a few years, CAMICO received sponsorship endorsements from the Washington, Nevada, Arizona and Colorado CPA societies, and was admitted to write insurance in those states. Premiums outside of California jumped from $42,000 in 1996 to more than $4 million in 2003.

By the mid-1990s, CAMICO also started to pay substantial dividends to policyholders for good loss control experience. CAMICO paid $1.7 million to policyholders in 1996, followed by $1.9 million the next year, while continuing to return interest and principal to its original contributors.

In 1998, CAMICO paid off all of the certificates of contribution and filed for approval to write insurance in New York--more signs of its maturation.

In the late 1990s, CAMICO negotiated a deal with the Design Professionals Insurance Company to take over DPIC's national book of accountant professional liability business, a move that compressed a decade of organic growth into three years.

The DPIC acquisition catapulted CAMICO into national prominence, immediately putting it into 37 new states and introducing an additional distribution channel for the company's products through independent insurance agents.

CAMICO AT 20

Today, CAMICO serves more than 6,860 CPA firms in 44 states with 56,421 staff members. The company, which started with $5 million in loans, recently reported $134 million in assets and more than $65 million in gross written premium. It employs nearly 100.

The company has a policyholder surplus of nearly $47 million and is consistently rated A- (Excellent) for financial strength by A.M. Best Company, the nation's leading rating agency for insurance carriers.

A.M. Best cites CAMICO for factors such as "excellent capitalization," "extensive knowledge of the CPA profession" and "superior service and delivery of substantial value to its customers."

CAMICO is the nation's largest CPA-owned provider of professional liability insurance and loss control services--and second largest provider of coverage to CPAs overall.

As CAMICO grows in strength and knowledge, the addition of new tools and innovative products, as well as policyholders, will fortify its position in the accounting profession.

Change is inevitable, but CAMICO will always remain focused on its mission: to be there for CPAs as a stable source of insurance, risk management services and advice.

CAMICO owes its success to the founding group of CPA leaders and policyholders who gambled on the idea to form the organization and a group of employees who are dedicated to looking after policyholders. The crisis out of which CAMICO was born, while difficult, turned out to be a great moment of opportunity for CPAs.

STATE CPA SOCIETIES

SPONSORING CAMICO

Society           Date of
                Sponsorship

California         1986
Washington         1997
Nevada             1997
Colorado           1998
Arizona            1999
New York           2000
Missouri           2002
Tennessee          2002
Indiana            2003
Mississippi        2004
South Carolina     2004
Kentucky           2005
Virginia           2006

BY JOHN DODSWORTH, CAP

John Dodsworth redeeming CAMICO's first certificates of contribution.

John Dodsworth, CPA is president and director of CAMICO. You can reach him at [e-mail].