What Really Took Down Lumbermen’s Underwriting Alliance

“History doesn’t repeat itself, but it does rhyme.”
— Mark Twain

Our firm, Risk Transfer, has done over $2 billion of Professional Employer Organization, and Staffing Services business over the course of the last fifteen years.  We are very proud of our client’s ethical fabric, sophistication and professionalism.  We consider them family.

Logic would suggest statute, insurance departments and credit rating organizations each play a vital role in how my profession as an insurance agent is governed as well as the insurance carrier community of any given state.  The process of formal governance for insurance carriers involves the issuance, and ongoing management of “Certificates of Authority”.  This process ensures that only good people with enough money and who have proved to have the management team and platform to operate an insurer are allowed to What types of products are allowed in the given state for any specific carrier fall on statute; which is then administered through the authorities granted that carrier.  Unfortunately, I know of no state where a different size or solvency level needs to be in place to have the authority to offer a large deductible.

Just three years ago, author Jon Coppelman was kind enough to allow me a rebuttal to an article inferring that it was the PEO community that rendered another insurance carrier insolvent.

The full story here… my piece below:

http://www.workerscompinsider.com/2012/05/risk-transfer-a-1.html

I am still very appreciative for him allowing me to present a different perspective; which is the same problem today nearly 3 years later.  This is a product not an industry issue.

Follow Up – June 7, 2012

After posting, I received a call from Paul Hughes, CEO of Risk Transfer in Florida, who is quoted above. While not contesting the premise that large deductibles are poorly managed in Florida (and elsewhere), he believes that I unfairly singled out PEOs in the blog. The fundamental issue is the failure of the state to adequately regulate and oversee large deductible programs. I agree.

Please take a few moments to read Paul’s response, which employs the useful metaphor of a casino for the risk transfer industry:

“The core issue to me is the role of the regulator versus the business owner in the management of the “casino” (insurance marketplace). That is one of the parts of Jon’s article in Workers Comp Insider that blurs the line a bit on what the PEO’s role is within the casino and whose job it is to set the rules. The casino is the State as they certify the dealers to play workers’ compensation (Carriers, MGU’s, MGA’s, Agents and Brokers) and the State also certifies that the players are credible (not convicted of insurance fraud) and can pay/play by the rules of the house. The rules are set by the house and the games all require public filings – ability to write workers’ compensation (certificate of authority), ability to offer a large deductible plan (large deductible filings), agent license, agency license, adjusters license and any other deviation from usual business practices (like the allegations that one now defunct insurance carrier illegally charged surplus notes to desperate PEO’s in the hardest market the industry has ever seen). The “three-card monte” that Jon alludes to in this article is managed not by the dealers (carriers), but by the house (state). Would a real life casino consider it prudent to allow one of their dealers to expose 20% of their $5m in surplus through high deductibles sold to PEO’s with minimal financial underwriting and inadequate collateralization? Would any casino write harder to place (severity-driven) clients to include USL&H, roofers etc with the minimum amount of surplus needed to even operate a carrier…? Of course not. These “big boy” bets would never be allowed in Vegas without the pockets being deep enough to cover the losses.”

Unfortunately, it is 2015 and no states that I know of have large deductible language that addresses the inherent credit risk of the product.  A few more carriers have gone insolvent as a result of this specific issue, many policyholders with lost collateral and deposit instruments and and the claims continue to pile up on the guaranty funds.  The easy scapegoat is the PEO or Staffing Services policyholder, yet in these cases they were the consumer of a very highly sophisticated financial services product.  Taking a $1m position on your workers’ compensation program is taking a bet on 90% of your expected losses.  This is an extreme shift that deserves more attention by the regulators that manage the product.  The carrier then takes the additional bet that the losses are going to be what is expected and that the entity buying the policy will be an “ongoing concern” for the 7-10 year payout pattern associated with the payment of workers’ compensation claims.  AM Best does not factor credit risk on earned premiums so that $50m of manual premiums becomes $10-15m after the application of the deductible credit.  If the expected losses under the deductible are not properly collateralized,  “A” and “B” companies on paper one day are in run off the next.

Logic would tell us that taxpayers should not have to bail out states that create law and the insurance companies that profit under it.   Rules around credit risk for loss sensitive workers’ compensation plans must be addressed or logic will tell us the same scapegoats will keep being the target with the same issues not prevented in the future -

I will be spending some more time on this topic in the days to come — This has been an issue for far too long and deserves some additional insight.

Will the Affordable Care Act Fuel Higher or Lower Workers Compensation Costs?

As health care costs continues to grow as a hot topic in board rooms and bars alike, there are many debates on how workers’ compensation will be impacted.  While none in the insurance industry have historically integrated occupational and non-occupational health care, It just makes too much sense for small and large employers alike.

Common logic would suggest that if employees are not covered for health insurance off the job, there is a potential for fraudulent claims to be filed in the workers’ compensation arena as it is the only healthcare policy available to be triggered.    The following RAND Study from a few years ago supports that thought process.

The share of patients accessing the ER who had no insurance fell from approximately 15 per- cent prior to the reform to about 9 percent after the reform, a 40 percent decrease. The increase in coverage can be explained by new enrollments in Medicaid rather than by uptake of private health insurance.”

http://www.rand.org/content/dam/rand/pubs/technical_reports/2012/RAND_TR1216.pdf

As a counterpoint, here is a more recent article that looks at a potential cost increase on the workers’ compensation side due to benefit levels of healthcare versus workers’ compensation.

http://www.riskandinsurance.com/aca-could-drive-claims-to-workers-comp/

“By Victor’s projection, that shift could result in as much as $90 million in claims moved from group health to workers’ comp in Illinois, and $55 million in Pennsylvania. These, of course, are preliminary estimations that could change pending how well ACOs perform and whether the reimbursement format changes. WCRI also plans to reexamine the issue with a focus on how fee schedules affect workers’ comp outcomes and rates.”

The author looks forward to all of these twists and turns brought by our new health care reform and sorting out the impact to the overall cost of providing the best quality health care to American workers on or off the job.

-PRH

Professional Employer Organizations (“PEOs”) Grew 25% in 2014

Our friends at the National Association of Professional Employer Organizations (“NAPEO”) continue to bring further factual evidence about the PEO industry.  In this instance, NAPEO has proudly displayed further empirical evidence out of this month’s INC magazine.

Great job Kerry Carruthers!

Click here to visit the featured NAPEO article in the March edition of Inc magazine.

Some of the statistics Laurie and NAPEO report that further illustrate what the PEO model does for American Business and their loyal employee base.

A couple very interesting facts :

  • Twice as many American worker’s that use a PEO are part of some type of retirement plan (i.e. 401K) for employers that have 10 employees or more.
  • American businesses that use PEO’s have a 24-33% lower turnover rate.
  • Businesses that use PEO’s have a 50% lower failure rate.
  • Businesses that use PEO’s grow at a 7-9% faster rate.

I can almost hear from Florida the grumbling from the financial district —- says who?

Much of this data was compiled by renowned economist Laurie Bassi.  Laurie is a PHD in Economics from Princeton who specializes in Human Resources and the optimization of the business ecosystems between a business, their employees and the clients which each serves.

I love the vision of her firm:

McBassi’s Vision

A world in which companies are forces for good – worthy of their employees’ best efforts, customers’ continued business, and investors’ ongoing support

“Amen.” – “How About Them Apples!”

Well deserved factual NEWS for a historically misunderstood and oft-maligned industry!

These data points continue to affirm that the PEO model is by far the best platform to deploy “Fortune 2000″ bundled HR, regulatory compliance and insurance offerings.

Ask the experts!  Ask a PEO…

-  Paul Hughes

 

44% of Americans Without “a Good Job”

The below article gives a very interesting perspective to the supposed drop in national unemployment. Of particular note — how do we really know when we are doing better in this realm based on how we are currently keeping score? One hour a week means you are not unemployed? -Paul

“Gallup defines a good job as 30+ hours per week for an organization that provides a regular paycheck. Right now, the U.S. is delivering at a staggeringly low rate of 44%, which is the number of full-time jobs as a percent of the adult population, 18 years and older. We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America’s middle class.”

“If you perform a minimum of one hour of work in a week and are paid at least $20 — maybe someone pays you to mow their lawn — you’re not officially counted as unemployed in the much-reported 5.6%. Few Americans know this.”

http://www.gallup.com/opinion/chairman/181469/big-lie-unemployment.aspx

(copy/pasted full article below as well)

The Big Lie: 5.6% Unemployment

by Jim Clifton

Here’s something that many Americans — including some of the smartest and most educated among us — don’t know: The official unemployment rate, as reported by the U.S. Department of Labor, is extremely misleading.

Right now, we’re hearing much celebrating from the media, the White House and Wall Street about how unemployment is “down” to 5.6%. The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market.

None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job — if you are so hopelessly out of work that you’ve stopped looking over the past four weeks — the Department of Labor doesn’t count you as unemployed. That’s right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news — currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren’t throwing parties to toast “falling” unemployment.

There’s another reason why the official rate is misleading. Say you’re an out-of-work engineer or healthcare worker or construction worker or retail manager: If you perform a minimum of one hour of work in a week and are paid at least $20 — maybe someone pays you to mow their lawn — you’re not officially counted as unemployed in the much-reported 5.6%. Few Americans know this.

There’s no other way to say this. The official unemployment rate, which cruelly overlooks the suffering of the long-term and often permanently unemployed as well as the depressingly underemployed, amounts to a Big Lie.

And it’s a lie that has consequences, because the great American dream is to have a good job, and in recent years, America has failed to deliver that dream more than it has at any time in recent memory. A good job is an individual’s primary identity, their very self-worth, their dignity — it establishes the relationship they have with their friends, community and country. When we fail to deliver a good job that fits a citizen’s talents, training and experience, we are failing the great American dream.

Gallup defines a good job as 30+ hours per week for an organization that provides a regular paycheck. Right now, the U.S. is delivering at a staggeringly low rate of 44%, which is the number of full-time jobs as a percent of the adult population, 18 years and older. We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America’s middle class.

I hear all the time that “unemployment is greatly reduced, but the people aren’t feeling it.” When the media, talking heads, the White House and Wall Street start reporting the truth — the percent of Americans in good jobs; jobs that are full time and real — then we will quit wondering why Americans aren’t “feeling” something that doesn’t remotely reflect the reality in their lives. And we will also quit wondering what hollowed out the middle class.

Jim Clifton is Chairman and CEO at Gallup.
OPINION
February 3, 2015

Top 10 OSHA trends for 2015

For those PEOs who market occupational safety consulting as part of their risk management services, it’s a good idea to keep up with the regulators at OSHA.  This article outlines the trends of OSHA enforcement activities for the coming year.  

                           

Click here for the full list of Top 10 OSHA trends for 2015

New Rules on Drugs Not Curbing Workers’ Comp Costs

PEO Compass published several articles in 2014 outlining the legislative movements in numerous states to regulate the costs of physician-dispensed drugs that have increased the costs of workers’ compensation claims.  We continue to monitor the development  of this trend and the results to the workers compensation system that affects employers in the ultimate price of their premiums.

According to an article by CFO.com, “Eighteen states have adopted rules to reduce the costs of physician-dispensed drugs. But according to a paper by the Workers Compensation Research Institute, doctors in California and Illinois have found a new way to dispense drugs from their offices at two to three times the price charged by pharmacies.”

Click here to read the entire article.

Must People Say ‘I Do’ to Get Workers’ Compensation Benefits? (The Workers Compensation Institute)

Same-sex marriages are now legal in 35 states and DC, however, 14 states outlaw these unions. What does this have to do with the workers’ compensation? It leaves the courts to iron out issues such as death benefits arising out of workplace fatalities from the transition of  “domestic partnerships” and same-sex marriage.

Click here for the full article from the Workers Compensation Institute.