Short of projected growth, local insurer pays back incentives for misreported, non-Va. jobs

Elephant Auto Insurance launched in 2009. (Jonathan Spiers)

Three years after it announced plans to quadruple its local workforce with the help of state incentives, a Henrico-based auto insurer has fallen short of that projection and is paying back funds it received for jobs that, it turns out, were created outside Virginia.

Elephant Auto Insurance recently paid back nearly $50,000 it was awarded through the Virginia Jobs Investment Program (VJIP), after informing the state’s economic development arm that 62 of 306 jobs the company created over the past three years were based outside of the commonwealth.

The repayment came soon after Richmond BizSense asked the company about its local employment count, which it had said would, by now, nearly quadruple what it was in 2015. That year Elephant and then-Gov. Terry McAuliffe’s office announced the company planned to add 1,173 jobs in three years at its local headquarters at 9950 Mayland Drive.

Three years later, as of last month, its local headcount totaled 564 – only 166 more than the 398 the company employed in the Richmond area at the time the announcement was made.

The additional jobs were to be eligible for incentives through VJIP, which would reimburse the company $800 for each employee added in the state over the three-year span.

Elephant requested the reimbursements for 306 jobs added in that time, amounting to just under $245,000 in incentive funding received, according to the Virginia Economic Development Partnership, which administers the program.

Late last month, Elephant CFO Jason Baham informed VEDP that that number was incorrect, citing a “clerical error” that he said the company had discovered.

In a letter dated July 30, Baham wrote to VEDP: “ … it appears that Elephant mistakenly submitted new jobs for Non-VA employees during the reporting process of the prior program that Elephant was enrolled in.”

After breaking down the numbers of what was and what shouldn’t have been reported and reimbursed, Baham said, “My sincerest apologies about this oversight, it was truly a clerical mistake.”

The next day, VEDP received the overpayment amount of $49,632 back from Elephant. The money will be returned to the VJIP fund, VEDP spokeswoman Suzanne Clark said.

In a statement, Elephant said the error was discovered when it reviewed its previously reported numbers after discussions with VEDP “to further identify program requirements.”

Elephant’s HQ is housed in the Deep Run I building at 9950 Mayland Drive. (Jonathan Spiers)

“Upon noticing a clerical error, Elephant immediately notified the VEDP and refunded them the overpayment,” the statement said. “Elephant is proud to be headquartered in Richmond, VA and looks forward to continued headcount growth in Virginia.”

Clark said the repayment is the first VEDP has received from a recipient since it began administering VJIP in 2014. Last fiscal year, the program awarded a total of $6.9 million in incentives to 152 companies across the state.

Clark said the program has relied on companies self-reporting jobs that they create in Virginia, but more-stringent verification policies approved this June and scheduled to roll out this fall are expected to improve the process.

Currently, companies are required to show proof of hires and are reimbursed 90 days after the job is created. Information provided to VEDP includes employee names, hire dates and job titles, as well as current full-time headcount and the average wage of the employees listed, Clark said.

This fall, VEDP expects to implement enhanced verification policies that its board approved in June, in the wake of VEDP reforms the General Assembly mandated last year following a critical report by the Joint Legislative Audit and Review Commission on VEDP’s operations, performance and accountability.

The enhanced policies for VJIP will be comparable to those VEDP uses to verify discretionary incentives, with companies’ submissions compared with quarterly payroll and tax reports that employers are required to file with the Virginia Employment Commission. The next quarterly reports are due in October, by which time VEDP aims to implement the policies, Clark said in an email.

“Because the new verification process has not yet been fully implemented, the Elephant Insurance project was closed utilizing the previous approach,” Clark said.

“The failure to provide accurate records to the Virginia Employment Commission can result in criminal and civil penalties. Accordingly, companies typically use care in providing the records, and the records are a valuable resource in verifying information provided to VEDP.”

Because the incentives for Elephant were awarded after jobs were created, Clark said the discrepancy between the company’s projected and actual hires does not mean any incentive funding was lost as a result. It just means the state did not award – because Elephant did not request – additional funding that was available and budgeted based on the company’s projection.

When Elephant’s three-year incentive cycle ended this March, Clark said, “The remaining funds available from the allotted budget for the project were returned to the VJIP account.”

‘We’re growing efficiently’

In an interview at Elephant’s Henrico headquarters, CEO Alberto Schiavon acknowledged the difference in the projected and current staff levels, attributing the difference to a change in the company’s growth strategy since the announcement was made in mid-2015.

“We took part in the (incentive) program, and we received the funding only for the jobs that we created,” Schiavon said. “While the projections might have been different, we haven’t been given any money that wasn’t (for the jobs created).”

Elephant CEO Alberto Schiavon in the company’s Henrico headquarters. (Jonathan Spiers)

Schiavon, who was with parent company Admiral Group at the time of the announcement but wasn’t leading Elephant until he was named CEO last November, said the smaller headcount should not be interpreted as the insurer pulling back on its investment in its local presence and operations.

“We haven’t grown as much as (projected in the announcement), but I would argue that we have invested in the Richmond community way more than the article was suggesting,” Schiavon said, referring to BizSense’s report on the 2015 announcement.

“We have decided to go for a slightly different strategy and grow organically. We want to make sure that we grow intelligently,” he said. “We have employed many people since then, and we have invested in the Richmond community. Every year we spend tens of millions of dollars in salaries.”

The 2015 announcement said Elephant also would invest $2 million to expand its headquarters in the Deep Run I building it subleases from fellow tenant Allianz Global Assistance.

Schiavon would not discuss details of how that money was spent, though he said the full amount wasn’t used when the company subleased an additional 22,000 square feet of space on the building’s third floor in 2016, expanding its fourth-floor footprint for a total of 76,000 square feet of space.

Some of the funds were spent on outfitting the third-floor space with new desks, IT equipment and a conference room, according to the company. Schiavon said Elephant put an emphasis on investing in technology over reaching a certain staff level and taking advantage of the incentives.

“We’re growing efficiently,” he said.

In July, Elephant announced it had reached the 200,000 mark in vehicles insured in its six-state service area. The company, which began in 2009, insures over 28,000 vehicles in the Richmond area specifically.

Elephant is a subsidiary of UK-based Admiral Group, whose brands include a UK version of Elephant and, also based in Richmond. Elephant’s U.S. annual revenue totaled more than $207 million in 2017.

The company added a second office in 2017 in Texas, where it is active in addition to Virginia, Maryland, Illinois, Indiana and Tennessee. Schiavon said Elephant is licensed to sell policies in more states and is considering expansions, though he would not go into specifics about the company’s growth goals.

‘Rarely a static number’
VEDP’s Clark said it is not uncommon for companies that participate in VJIP to miss their announced employment projection.

“It often is the case that for the VJIP program, companies ultimately create more or fewer jobs than what is announced,” she said. “Indeed, at any company with substantial employment, the total number of employees moves up and down based on attrition, market demand, etc. The number of employees at any company location with 50 or more jobs rarely is a static number.”

Clark said by announcing a specific number, VJIP then can set a maximum amount that a company could receive for a particular investment project. Because VJIP incentives are reimbursements for jobs created and not paid up front, she said, “…there is no contractual requirement for the company to meet its projected job creation parameters and utilize the maximum VJIP funding allotted for the project.”

Clark also noted that Elephant could have added more employees in the three-year period than the 306 jobs submitted for reimbursement. With 398 employees at the time of the announcement, the resulting total from the addition of those 306 jobs – 704 – is 140 jobs higher than the company’s current local headcount of 564.

Elephant also employs workers at the office it opened in Texas. Companywide, it employs 637.

While Elephant’s repayment did not initiate the changes VEDP is making to its verification policies for VJIP, Clark said the scenario does illustrate the need for those policies.

“This situation primarily has reinforced the importance of the recently adopted VEDP Board policies that require enhanced verification of performance for companies receiving VJIP incentives, leveraging VEC data,” Clark said.

“Although not prompted by the Elephant situation, it is worth noting that administration of the VJIP incentive program is being shifted from VEDP’s Workforce Division to its dedicated Division of Incentives,” Clark said, adding that the latter division was required in last year’s VEDP reform legislation. The year-old division is staffed with five full-time employees tasked with managing VEDP’s incentives program, she said.

“One benefit of having a centralized incentives function will be a consistent approach across all incentive programs administered by VEDP,” Clark said.

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Michael Dodson

Also not uncommon for Gov. and Mayors to count the announcement total in the number of jobs they “create” even though as the article shows, and states, the announcement numbers are rarely close to the actually created numbers.