The business model of many PEO’s includes utilizing the resale of workers’ compensation as a profit margin. For this to be successful, the PEO must understand the liabilities and assets affiliated with each of their workers’ compensation policies and price them appropriately. Both guaranteed cost and loss sensitive platforms have many variables which need to be understood over the course of the policy term to do this successfully. Because of this, understanding profitability at a portfolio or even a policy level can sometimes be a challenge. Understanding the profitability of individual client companies within master policies or with exposures spread over multiple policies adds an additional level of complexity.
At RiskMD we are able to seamlessly solve this problem! By tracking assets (premium) and liabilities (claims) of each client company based on their unique FEIN we are able to understand loss ratios and loss/profit margins on each client company within a given book of business. This holds true regardless of how coverage for the client company is structured, i.e. master policies, MCP’s (multiple coordinated policies), client direct policies or a combination thereof. This also holds true year-over-year regardless of changes in carriers or policy structure for any given client company.
This analysis of each client company can be performed using the carrier’s billed premium or the PEO’s charged premium. This allows us to understand performance of clients and policies as the carrier would view them, giving us greater leverage for negotiating pricing at renewals. Additionally, this allows us to understand client and policy profitability to the PEO itself.
To learn more about RiskMD’s patented process and how to understand YOUR data, contact David Sink at (407)613-5489 or by email: dsink@riskmd.com
As providers of service and insurance to PEO’s, small and medium-sized businesses are the “bread and butter” of clients targeted.
“According to an ISO analysis, 80 percent of cyber breach victims in 2017 were small and medium-sized businesses.” — Neil Spector, president, ISO, a Verisk business
Great article on the current state of cyber from our friends at insurancejournal.com
The E-merging Risk that Keeps on E-volving: Cyber
6 Reasons Cyber Remains Top Emerging Risk
Property/casualty insurance experts may not agree on everything but there is a consensus that the most important emerging risk for the industry remains the five-letter word: CYBER. It is not new, of course, but it stays atop emerging risk lists because of its dynamic and pervasive nature.
Insurance Journal defines emerging risks as those that are new and not yet widely recognized, or perhaps recognized but not well understood. A number of industry leaders explain why cyber remains such an important risk to watch.
Not Slowing Down
The number of data breaches and the average costs of cyber-crime are rising every year. These trends show no signs of slowing down. In fact, cyber risk is becoming more concerning as crime-as-a-service gains popularity and artificial intelligence technologies are used more frequently in attacks. Internet of Thing devices are increasing the attack surface and providing more ammo for hackers. One of the more difficult aspects about insuring cyber risk is the dynamic nature of the risk. Just a few years ago, cyber-attacks primarily involved stealing private credit card and health information from large companies. Today, cyber criminals focus on completely different tactics for making money, such as locking out users from computer systems using ransomware, or secretly hijacking computers to mine cryptocurrency. And large corporations aren’t the only targets. According to an ISO analysis, 80 percent of cyber breach victims in 2017 were small and medium-sized businesses. — Neil Spector, president, ISO, a Verisk business
Keeping Up with IoT
The biggest risks involve cyber crime. Under “emerging risks,” one of the biggest is the Internet of Things (IoT), and the cybersecurity risks created by billions of interconnected devices. The challenges for agents and brokers multiply in regard to understanding the potential implications, such as IoT devices in homes and businesses — tracking sensors, fire/flooding/intrusion warning devices and more. Agents need to be aware of the questions to ask clients to ensure they are offering complete coverages. They need to be vigilant in keeping up with the IoT devices emerging at an astonishing pace. — Robert Rusbuldt, CEO, Big “I” Independent Insurance Agents & Brokers of America.
High Severity
There are many scenarios where cyber risk comes into play, but one example is related to vehicle systems. Luxury automobiles, for example, have up to 150 or more computer programs that impact vehicle performance. Tractor trailer technology is also advancing rapidly, and just one of those systems being hacked could have catastrophic results. WSIA conducts a biennial survey of members regarding emerging issues. Cyber exposure jumped in priority this year, with members agreeing the issue has high severity in terms of current impact industrywide. — Jacqueline Schaendorf, president and CEO, Wholesale & Specialty Insurance Association
Cyber Property Damage
One definite area of emerging peril is the threat of substantial property destruction caused by intrusions into sensitive computer networks and connected hardware devices. Long gone are the days where the worst aspect of cyber vulnerabilities amounted to stolen credit card information or lost privacy. Instead, a new breed of cyber exposure is unfolding whereby energy infrastructure facilities and other industrial works have been targeted with cyber attacks causing explosions, wreckage and business interruption. Most expect these risks will soon expand to domestic infrastructure and transportation operations with the prospect of major instances of property damage and life-threatening injuries.
— Joshua Gold, shareholder attorney, Anderson Kill
Immature Market
Cyber comes with a bit of a double-edge sword. On one hand, it is a new market that is growing faster than any other for the industry. But being an immature market means more time is needed to flesh out the data to improve underwriting. Where cyber may be a more interesting market — perhaps even one that helps us peer into the future value of insurance — is how risk mitigation tools are being incorporated into the mix. We are seeing many carriers partner with technology companies in order to assess the actual vulnerabilities within the customers. This presents more stability for underwriting. Customers’ value may evolve in the future toward risk mitigation and resilience building. This would be a shift for an industry that — at least for the past several decades — has based its value on price. — Sean Kevelighan, president and CEO, Insurance Information Institute
Accumulation Risks
In a study titled “Advancing Accumulation Risk Management in Cyber Insurance,” global insurance think tank The Geneva Association focused on the danger of accumulation risks as a threat to cyber insurance. The report highlights several cyber accumulation risk challenges:
Insurers and reinsurers could underestimate non-affirmative cyber exposure leading to an unplanned shock from a major event. Non-affirmative cyber exposure occurs when a cyber attack causes major losses by triggering coverages in other classes.
Data are of insufficient quality, are incomplete and/or lack the necessary consistency for more advanced modeling techniques.
Governments predominantly fail to provide frameworks for the sharing of large- scale cyber-terrorism-losses.
– Anna Maria D’Hulster, secretary general, The Geneva Association
Employers have always been faced with navigating how to protect themselves against the liabilities of employing others. With increased awareness and occurrence of workplace violence events and the growing momentum of the #metoo movement, this exposure has never felt more real.
PEOs have a unique position with regards to this exposure, sharing employer responsibilities with their clients. The nature of this shared exposure can vary greatly from one PEO to another depending on the composition of their client list, the contents of their CSA (Client Service Agreement) and the structure of their EPLI (Employment Practices Liability Insurance) policy.
The components of these policies can vary greatly. Important provision within these policies include a wide rage of protections, such as IRCA (Immigration Reform and Control Act) coverage, Wage and Hour claims defense, Workplace Violence recovery and Third Party Discrimination indemnifications, just to name a few. How and where these policies extend coverage to your client companies swings widely from policy to policy. Does the EPLI policy require an annually updated CSA to extend coverage to a client? What are the provisions of the Hammer Clause, which restricts the insureds rights with regards how a claim may be settled? How are terms such as Employee, Company and Client defined within the policy?
For a comprehensive review of your employment practices exposures and coverages, speak to an experienced PEO agent.
To read more on EPLI, visit the following articles:
According to RiskMD, a proprietary, patented, PEO focused data management and analytics firm, some states consistently outperform others regardless of industry or NCCI hazard code; others may surprise you!
Here we looked at undeveloped loss ratios and frequency as a function of claim count per $1M in payroll by NCCI hazard code according to the following groupings;
Hazard Groups A & B
Hazard Groups C, D & E
Hazard Groups F & G
We looked at this data both on national and state specific levels for the past seven years and found that the performance of some states may surprise you. This is based on client company performance aggregated at the state and national levels, regardless of policy structure.
NY and CA, for example, maintained their lowest loss ratios in Hazard Groups F & G and performed most poorly in Hazard Groups A & B over this seven-year period.
NJ, MA, and the National Aggregate performed best by both loss ratio and frequency over the past seven years in Hazard Groups C, D & E.
Performance by loss ratio for TX, FL and IL, increased incrementally as the hazard levels increased, however for these states, the incident of loss (frequency) consistently occurred higher within the Hazard Groups A & B than within the Hazard Groups C, D & D.
Analyzing your historical data is one of the best ways to predict future trends in your book of business and evaluate appropriate pricing of clients.
Find out what truths are hidden in your data.
Speak to a RiskMD representative to learn more. www.riskmd.com
NAPEO recently sent out an email alerting their members of a scheme targeting PEOs and we wanted to make sure this was sent out to as many readers as possible to prevent anyone from becoming a victim.
NAPEO’s fraud alert stated the following:
“We have heard from a number of our members in the Midwest about an increase in fraud attempts on PEOs, where a purported legitimate client signs on and runs a pay card payroll. This new client provides a FEIN and in at least one case passed a credit check, but the ACH on the first payroll came back as “insufficient funds” and the client was nowhere to be found. Please be on alert that this is occurring, and let your local/state law enforcement agencies know if you have experienced payroll fraud. We have no reason to believe that this fraudulent scheme is limited to companies in the Midwest, but that is where we have been made aware that the recent activity has taken place.
NAPEO is creating best practices for its members to help guide the client vetting process. If you have any questions or have had this occur to your PEO, please do not hesitate to reach out to Farrah Fielder at ffielder@napeo.org.”
In the move to buy Jardines Lloyds Thompson Group (JLT), MMC (Marsh) is poised to be the biggest global reinsurance intermediary by 40% over Aon. Both groups have been active in PEO placements and it will be interesting to see the new combined vision.
MMC’s $5.6bn acquisition of Jardine Lloyd Thompson Group (JLT) will cement the group’s position as the industry’s largest global broker based on (re)insurance revenues and will also create a 40 percent top line differential based on 2017 results.
Last year, MMC’s risk and insurance services division posted revenues of $7630mn vs Aon’s total (re)insurance revenues of $6378mn.
However, JLT’s risk and insurance division posted revenues of £1065.8mn in 2017, the equivalent of $1396mn at today’s exchange rate of £1:$1.31.
On pro-forma terms, this would make the combined group’s top line based on 2017 (re)insurance revenues as high as $9026mn; a significant milestone from Aon’s $6378mn, or 40 percent higher.
Earlier today, re-Insurance revealed that a combined Guy Carp-JLT Re will become the largest reinsurance intermediary, overtaking Aon’s reinsurance arm, Aon Reinsurance Solutions Business.
Aon’s reinsurance arm posted revenues of $1.43bn while a combined Guy Carp-JLT Re will have marginally higher revenues of $1.47bn based on 2017 reported numbers.
While there will inevitably be some fall-out from such a significant M&A, the gap will be the largest between the two firms for over thirty years when they both led a major consolidation drive in the 1990s (see table).
It is also the largest ever acquisition undertaken among (re)insurance intermediaries trumping the $2bn Marsh paid to acquire another UK broking heavyweight, Sedgewick, in 1998 and the $2.1bn that Willis paid in 2008 for US retailer Hilb, Rogal & Hobbs.
Marsh’s focus on building out its US mid-market business in recent years has seen the group regain its number one position after a few years of revenue pre-eminence by Aon followings its 2008 £844mn acquisition of reinsurance intermediary Benfield and also the particular privations endured by MMC at the hands of the near-obsessed former NY attorney-general Eliot Spitzer in 2004-05.
Below is a history of major broking M&A between US and UK broking firms. The big, once again, are set to get bigger.
A System and Method for Valuation, Acquisition and Management of Insurance Policies
ORLANDO, September 12, 2018 / — RiskMD is granted a patent for “System and Method for Valuation, Acquisition and Management of Insurance Policies”. The patent focuses on acquiring, valuing and managing workers’ compensation client company exposures regardless of the insurance policy structure. This is the first Professional Employer Organization (“PEO”) specific patent ever issued.Since its inception in 2005, RiskMD has been focused on understanding the diagnostics of the prospective or current coemployed client companies of a Professional Employer Organization (“PEO”) within the overall portfolio of client companies of that PEO. In order to understand what client companies fit the given portfolio and at what price, we partnered with Appulate to efficiently acquire client data to then apply a proprietary predictive model called “The Barnstable Vintage” to value and thereby price the client company in question. The vision was “Geico meets workers’ compensation”; acquisition, underwriting, valuation and pricing of a client company based on a pure computer feed with underwriter input only on an exception basis as is shown in exhibit 1 of the patent:
While there will always be a place for underwriters and underwriting, the consistency of process in acquiring and valuing business is intended to focus the underwriter on the “art” versus “science” of underwriting. How long in business? Good neighborhood? Does the owner throw birthday parties for their staff? This is the art and the mathematical formulas behind the predictive models built provide the science.
In an effort to properly manage client companies of a PEO regardless of policy structure, the last piece was to understand and then to build a process revolving around a key identifier; the client company Federal Employer Identification Number (“FEIN”). Cathy Doss, the first Chief Data Officer for Capital One and current Data Officer for Fannie Mae, architected a similar process at Capital One with the Social Security Number as the key identifier and created a similar process for RiskMD. The combination of these processes are what provides the foundation for this patent and the vision of RiskMD. The end result is the ability to spin data amongst the three main data pools of a PEO; policy/application data, claims data and payroll/premium data. Using Tableau as a visualization tool behind the SQL built mathematical formulas, the end presentations look like the below.
Unlocking PEO client data to make more informed decisions is foremost in understanding how to acquire, value and properly manage insurance policies and the client companies that they insure. We are passionate about proving out the value and performance of the PEO industry and know that this now patented process will help immensely to that end. We appreciate all of our clients and carriers support on this effort over the last five years and look forward to further deployment of this tool to the betterment of each party and the industry as a whole.
“The vision of RiskMD was to make data-driven decisions in pricing and managing PEO client companies regardless of policy structure”, said Mr. Hughes. “Too much time was being spent diagnosing issues and not enough in treating them. While our now patented process has been in place for years, it is very satisfying to be recognized by the United States Patent Office for the invention”.
NCCI is recommending a sizable rate decrease for Tennessee at -19%. If approved, the decrease will be effective 3/1/19. See more information below from Insurance Journal.
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The National Council on Compensation Insurance (NCCI) has filed for a 19.1 percent decrease for workers’ compensation voluntary market loss costs in Tennessee – the largest recommended decrease since reforms to the state’s workers’ compensation system were passed in 2013.
The filing, made towards the end of August, is based on premium and loss experience for policy years 2015 and 2016, according to a filing executive summary released by NCCI. If approved the rates would go into effect March 1, 2019.
NCCI said the proposed decrease is attributed in part to a continued decrease in Tennessee’s lost-time claim frequency. NCCI also noted that both indemnity average cost per case and medical average cost per case have remained “relatively stable” in recent years after adjusting to a common wage level.
The proposed changes in voluntary loss cost level by industry group are as follows:
If approved, the rate decrease would be the eighth consecutive reduction in workers’ compensation rates. Last year, NCCI filed for a rate reduction of 12.6 percent and a 12.8 percent reduction was approved in 2016. Insurance carriers combine NCCI’s loss cost filings with company experience and expenses to develop insurance rates. In 2017, the Tennessee Department of Commerce & Insurance noted that since Tennessee introduced significant changes to its workers’ compensation system in 2014, NCCI filings have totaled loss cost reductions of more than 36 percent.
The workers’ compensation reforms that took effect in 2014 included the creation of a new administrative court system to handle workers’ compensation claims – moving the state’s claims process from a tort system to an administrative one. The reforms also established medical treatment guidelines and provided a clearer standard in determining to what degree an injured worker’s medical condition may have contributed to the cause of an on-the-job injury.
In June, a study by the Workers Compensation Research Institute (WCRI) attributed a drop in the average total cost per workers’ compensation claim of 6 percent in 2015 in part to the state’s workers’ comp system reforms.
“Most of the 6 percent decrease in the average total cost per workers’ compensation claim in Tennessee was from a 24 percent decrease in permanent partial disability (PPD) benefits. Total costs per claim incorporate payments for medical treatments, indemnity benefits, and expenses to manage claims,” said Ramona Tanabe, WCRI’s executive vice president and counsel, said in a statement at the time.
The WCRI study, which compared Tennessee workers’ compensation systems in 17 other states, also noted that worker attorney involvement has decreased in recent years and that time to first indemnity payment within 21 days of injury in Tennessee was similar to the other study states during 2016/2017. The study used claims data with injuries dating back to Oct. 1, 2014, and payments made through March 31, 2017.
Insurer trade group the Property Casualty Insurers Association also noted the impact the 2013 reforms have made in the state.
“Tennessee has had excellent financial results in the workers compensation market following the workers compensation reforms of 2013,” said Jeffrey L. Brewer, vice president of PCI Public Affairs. “Claims frequency continues to decline as a result of automation and improved employer safety programs. Loss costs appear to be stable.”
A spokesperson for TDCI said in an e-mail to Insurance Journal that it would be premature for the department to comment on the potential for a rate reduction given that the figures are preliminary and still need to be examined by actuaries. Commissioner Julie Mix McPeak has 90 days from the filing date to make a decision on the filing.
