Milliman’s gradient A.I. platform brings first A.I. predictive analytics solution to the professional employer organization (PEO) market

Huge news announced today by Milliman in the world of artificial intelligence (see below press release).  Milliman’s gradient A.I. is the first solution of its kind to be applied to PEO underwriting and claims management.  We at Libertate have been working with Milliman on this project for the past 18 months as we always felt there weren’t enough tools in the marketplace to help our clients price and evaluate risk.  Let’s discuss in more detail this week in Houston at NAPEO’s Risk Management conference!  Call me for more details at 305.495.5173.


SEATTLE – MARCH 19, 2018 – Milliman, Inc., a leading global provider of actuarial, risk management, and technology solutions, today announced that gradient A.I., a Milliman predictive analytics platform, now offers a professional employer organization (PEO)-specific solution for managing workers’ compensation risk. gradient A.I. is an advanced analytics and A.I. platform that uncovers hidden patterns in big data to deliver a daily decision support system (DSS) for insurers, self-insurers, and PEOs. It’s the first solution of its kind to be applied to PEO underwriting and claims management.

“Obtaining workers’ compensation insurance capacity has been historically difficult because of the lack of credible data to understand a PEO’s expected loss outcomes. Additionally, there were no formal pricing tools specific to the PEO community for use with any level of credibility – until gradient A.I. Pricing within a loss sensitive environment can now be done with the science of Milliman combined with the instinct and intuition of the PEO,” says Paul Hughes, CEO of Libertate/RiskMD, an insurance agency/data analytics firm that specializes in providing coverage and consulting services to PEOs. “Within a policy term we can understand things like claims frequency and profitability, and we can get very good real-time month-to-month directional insight, in terms of here’s what you should have expected, here’s what happened, and as a result did we win or lose?”

gradient A.I., a transformational insurtech solution, aggregates client data from multiple sources, deposits it into a data warehouse, and normalizes the data in comprehensive data silos. “The uniqueness for PEOs and their service providers – and the power of gradient A.I. – emerges from the application of machine-learning capabilities on the PEOs data normalization,” says Stan Smith, a predictive analytics consultant and Milliman’s gradient A.I. practice leader. “With the gradient A.I. data warehouse, companies can reduce time, costs, and resources.”

To learn more, go to For more on how gradient A.I. and Libertate brought predictive analytics solutions to PEOs, go to

About Milliman

Milliman is among the world’s largest providers of actuarial, risk management and technology solutions. Our consulting and advanced analytics capabilities encompass healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe. For further information, visit


AmTrust Financial Services Inc (AFSI) Expected to Post Quarterly Sales of $1.51 Billion

Securities and Exchange Commission allows for an automatic 15-day extension of its March 1st, 2018 filing deadline upon request.  March 16th would be the new deadline for AmTrust to post 4th Quarter Sales.  It looks like this will be achieved by AmTrust by March 12th.

Rada Kleyman


Equities analysts expect AmTrust Financial Services Inc (NASDAQ:AFSI) to announce $1.51 billion in sales for the current quarter, Zacks Investment Research reports. Three analysts have made estimates for AmTrust Financial Services’ earnings, with the lowest sales estimate coming in at $1.49 billion and the highest estimate coming in at $1.54 billion. AmTrust Financial Services posted sales of $1.41 billion during the same quarter last year, which would suggest a positive year-over-year growth rate of 7.1%. The business is expected to issue its next earnings report on Monday, March 12th.

On average, analysts expect that AmTrust Financial Services will report full year sales of $1.51 billion for the current financial year, with estimates ranging from $6.00 billion to $6.05 billion. For the next fiscal year, analysts forecast that the company will post sales of $6.24 billion per share, with estimates ranging from $5.90 billion to $6.57 billion. Zacks Investment Research’s sales averages are a mean average based on a survey of research firms that that provide coverage for AmTrust Financial Services.

Posted by Tatum Peregrin

Stone Point Capital, the Karfunkel Family and the CEO to Acquire AmTrust Financial Services, Inc.

Good news for AmTrust as Stone Point Capital and Karfunkel Family to buy back the 45% of common shares.   This move will bring AmTrust back from being under review to stable within the A.M. Best #: 051002  rating system.   This purchase is bringing significant improvement in balance sheet strength.   That is exciting news for AmTrust as they are the leader in Workers Compensation space.

Rada Kleyman

AmTrust Financial Press Released March 1st, 2018

NEW YORK, March 01, 2018 (GLOBE NEWSWIRE) — AmTrust Financial Services, Inc. (Nasdaq:AFSI) (“AmTrust” or the “Company”) announced today that it has entered into a definitive agreement with Evergreen Parent, L.P., an entity formed by private equity funds managed by Stone Point Capital LLC (“Stone Point”), together with Barry D. Zyskind, Chairman and CEO of AmTrust, George Karfunkel and Leah Karfunkel (collectively, the “Karfunkel-Zyskind Family”), in which Evergreen Parent will acquire the approximately 45% of the Company’s issued and outstanding common shares that the Karfunkel-Zyskind Family and certain of its affiliates and related parties do not presently own or control. The transaction values the fully diluted equity of the Company at approximately $2.7 billion, excluding the Company’s outstanding preferred stock.

Under the terms of the proposed merger, AmTrust common shareholders who are not affiliated with the Karfunkel-Zyskind Family (the “Public Shareholders”) will receive $13.50 in cash for each share of AmTrust common stock they hold. This represents a premium of 33% to the Company’s unaffected closing common stock price on January 9, 2018, the last trading day before Stone Point and the Karfunkel-Zyskind Family announced their proposal to acquire all of the outstanding common shares of AmTrust that the Karfunkel-Zyskind Family did not already own or control. The Karfunkel-Zyskind Family and certain of its affiliates and related parties will rollover their shares in the Company for interests in Evergreen Parent. Each share of the Company’s currently outstanding preferred stock will remain outstanding and it is expected that they will continue to be listed on the New York Stock Exchange following the consummation of the transaction.

The proposed merger is anticipated to close in the second half of 2018, subject to satisfaction or waiver of the closing conditions, including approval by regulatory authorities and the Company’s shareholders, including approval by a majority of the shares of the Company not owned or controlled by the Karfunkel-Zyskind Family, their children, senior management or their respective affiliates and certain related parties. The Company will file a Current Report on Form 8-K with the Securities and Exchange Commission which will more fully describe the terms and conditions of the proposed merger.

AmTrust’s Board of Directors has unanimously approved the proposed merger based upon the unanimous recommendation of a Special Committee of the Board of Directors, which was composed of independent directors not affiliated with the Karfunkel-Zyskind Family and advised by its own financial and legal advisors. The Special Committee and the Board each recommend that the Company’s Public Shareholders approve the merger and adopt the merger agreement.

Don DeCarlo, Chairman of the Special Committee, said: “The Special Committee and its advisors conducted an independent process and careful review of the proposal, with a focus on obtaining the best outcome for public shareholders. We believe the proposal delivers immediate and certain value for public shareholders at a significant premium to the unaffected share price and we encourage public shareholders to support the transaction.”

Mr. Zyskind, Chairman and CEO of AmTrust, said: “I believe that this transaction represents an exciting step forward for AmTrust, our employees, and the agents, brokers, partners, and customers we serve. As a private enterprise, we will be able to focus on long-term decisions, without the emphasis on short-term results.”

Mr. Zyskind continued, “The year 2018 marks the 20th anniversary of AmTrust’s founding. Alongside Stone Point Capital, a strong partner widely recognized as an experienced investor in the insurance sector, the Karfunkel-Zyskind family is deeply committed to the long-term strength and success of AmTrustWe are well-positioned to continue meeting our policyholders’ needs, supporting our brokers and agents, and developing our partner relationships.”

Jim Carey, Senior Principal of Stone Point Capital, said: “Stone Point is excited to be partnering with the Karfunkel-Zyskind family and AmTrust’s management team in the next phase of AmTrust’s growth. AmTrust has built its business through an innovative spirit and dedication to their employees, customers and partners. Under Barry Zyskind’s leadership, AmTrust will continue to invest in long-term growth initiatives and continue to support their policyholders, agents and brokers.”

Deutsche Bank Securities Inc. is serving as financial advisor to the Special Committee and BofA Merrill Lynch is serving as financial advisor to AmTrust.

Willkie Farr & Gallagher LLP is acting as legal advisor to the Special Committee, Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to Stone Point and Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal advisor to the Karfunkel-Zyskind Family.

EPLI Claims Reach Tipping Point Amid Anti-Sexual Harassment Movement

It would only be logical that based on the recent #meToo movement that frequency in sexual harassment events has and will increase.  The impact to carriers and on future premiums is yet to be understood, but would be expected to be material –

All the more reason to have a Professional Employer as your partner!

by Andrea Wells of

From Hollywood mogul Harvey Weinstein to famed television journalist Matt Lauer, to thousands of others speaking out through the social media movement #MeToo, sexual harassment allegations from individuals who claim to have been victimized by their employers and colleagues continue to surface.

The insurance industry is expecting a wave of employment practices liability insurance (EPLI) claims to roll in following the recent storm of sexual harassment allegations in entertainment, media, hospitality and other industries.

The current period represents a tipping point, according to Patrick Mitchell, management liability product head at Hiscox.

“In the past, employees feared retaliation and may not have reported harassment,” he said. Recent attention is likely to ease those fears. “So while retaliation is definitely possible, it appears now employees have the courage to report regardless of the consequences.”

Insurance experts say no industry or company is immune. While the initial wave of EPLI claims is likely to target high profile and large companies, there is the potential for a trickle-down effect on other industries, experts say.

“We’ve seen a lot of headlines for particular industries (entertainment/media), but the truth is, sexual harassment allegations can happen in any industry and in companies of all sizes,” Mitchell said.

“I think we’re seeing the tip of the iceberg,” agrees Jared Zola, a partner and insurance recovery expert at the law firm Blank Rome. While today it’s high-profile alleged bad actors being targeted who are very public figures in politics, media and entertainment, he thinks there will soon be “a flood of claims from employees or former employees at companies in every industry of every size.”

The likelihood of an employer being hit by a discrimination charge of any kind is higher than employers may realize. In 2016, U.S. companies had at least a 10.5 percent chance of having an employment charge filed against them, according to The Hiscox Guide to Employment Lawsuits, which was compiled using the latest data on employment charge activity from the Equal Employment Opportunity Commission (EEOC) and its state counterparts. Employment charges are often the first step toward employment suits. Employment discrimination charges can be based on race, sex, disability, age, national origin, religion, color and others in addition to sexual harassment. Most employers with at least 15 employees are covered by EEOC laws.

EEOC data from 2016 show that retaliation is the most common discrimination charge filed and is named in nearly half of all charges (45.9 percent). However, in many cases, more than one category can be cited in an EEOC discrimination filing.

Watershed Moment

Rick Betterley, president of Betterley Risk Consultants Inc., and author of The Betterley Report, believes this period will be seen as a watershed moment similar to what happened in 1991 when Anita Hill accused Clarence Thomas, President George H.W. Bush’s Supreme Court nominee, of sexual harassment when the two worked together. Betterley sees this moment as a significant turning point not only in U.S. employment, but also in employment-related insurance.

While the recent surge in sexual harassment allegations has not yet translated into claims, it’s most likely only a matter of time before the EPLI claims start arriving. When they do, there is most likely to be coverage for those employers that have purchased EPLI coverage.

“This is not a situation with an insurance company saying, ‘We never planned on covering that.’ They did plan on it. They wrote the policies to cover it. EPLI grew out of the Clarence Thomas hearings and Anita Hill’s testimony. That’s a big part of where this coverage started,” Betterley said.

At the same time, he believes the insurance industry can handle the claims. “It could be a big deal for the line, but I don’t see it as wrecking the line either,” he said.

EPLI has been a mature market for many years, with growth averaging 4.4 percent over the past four years in the United States, according to Betterley’s recently released Employment Practices Liability Insurance Market Survey 2017.

Potential Claims

Betterley foresees most claims activity stemming from the recent storm in sexual harassment allegations targeted at larger and/or prominent employers and suggests they may even be limited to only higher risk industries.

“There are some industries where you would say that the underwriters are already looking more carefully, thanks to the last couple of months, than maybe they would have been before. Entertainment’s one of them,” he said.

Underwriters are also likely to closely watch companies whose leaders have a more visible public profile.

“Let’s say it is an investment banking firm (with a high-profile CEO). … As an underwriter, they’re already paying closer attention to those industries or scenarios … the famous person or the entertainment person, but now they’re paying even closer attention,” Betterley said.

However, the insurance effects will not be restricted to industries being more closely scrutinized by underwriters. The problem of sexual harassment will eventually spill into all industries, according to Betterley, because employees who believe they’ve been harmed are now less likely to remain silent than before the current outpouring.

“If they brought a case against the employer, they perhaps didn’t have a great lawyer, maybe they settled for $25,000, or didn’t really push the allegation at all,” Betterley said. “Now, they’re reading about people getting millions and millions of dollars (in settlements). They’re saying, ‘I’m not going to settle as easily as I might have before.’”

Betterley compares it to what the insurance industry saw in the medical liability market years ago.

“I remember having a client say, ‘Our typical med-mal claim used to be $800,000, but people have been reading about lottery winners and CEOs with tens or hundreds of millions of dollars of compensation.’ All of a sudden, $800,000 is ‘paltry.’ Well, no, it’s not, but if you believe it is, then you won’t settle as quickly,” he said. “I think the same thing will happen with EPLI.”


The industry will feel the impact because there’s not much dispute that sexual harassment is covered as a wrongful practice under an EPLI policy.

“The policy provides coverage for a wrongful employment practice, which is a defined term. One of the prongs of what a wrongful employment practice is, is sexual harassment,” Zola said.

The definition of sexual harassment under an EPLI policy can be some “actual or alleged sexual advance that is unwelcomed, that has a purpose of creating an intimidating or hostile work environment,” Zola explained. This can encompass a broad set of circumstances, however, where there’s unwelcomed attention brought on an employee by another individual at the company that creates an uncomfortable work environment. That circumstance is probably enough to trigger coverage, according to Zola.

Joe Kelly, vice president and employment practices liability practice leader at Sompo International, a Bermuda-based global specialty insurer and reinsurer, agrees that there’s no question that sexual harassment is covered under EPLI policies.

“The EPLI contract is very straightforward in covering claims of sexual harassment so there’s no coverage issue,” Kelly said.

However, one issue that could affect the recent wave of sexual harassment allegations is the statute of limitations for coverage to be triggered.

The statute of limitations for filing a discrimination charge with the EEOC is 180 days. The statute does vary by state so it’s possible there’s a window of opportunity to file in a certain state beyond the 180 days, Kelly stated.

Some claimants are choosing to file under RICO (Racketeer Influenced and Corrupt Organizations Act), which does not expressly establish a period of limitations. “We saw this with some of the Weinstein claims and now there’s a group of women bringing a claim under RICO,” he said. “That’s one reason why they might bring charges under RICO.”

Another reason claims might be filed under RICO, according to Kelly, is that damages can be much higher.

Sexual harassment coverage is commonly broad, with no sublimit for sexual harassment, according to Marie-France Gelot, senior vice president of the insurance and claims counsel at Lockton. Coverage under an EPLI policy goes to both employees, and in most policies today, also for third parties including clients, customers and vendors. “It’s not just employees, it’s a vendor of the company, a customer of the company.” Any party – employee, customer, vendor – alleging they are sexually harassed by someone from the insured employer can trigger coverage, she said.

Some policies provide broader coverage than others, so it’s important for employers and their agents and brokers to review all terms and conditions, she said.

For example, many EPLI policies have bodily injury exclusions, but some don’t, notes Gelot. “The bodily injury exclusion in a sexual harassment conversation would draw a very hard line if harassment leads to something like rape,” she said. “But I’ve had cases where you had a rape by an employee that the EPLI insurer has had to cover despite the fact that the company didn’t want the carrier to cover it. The carrier had to cover it because there was no bodily injury exclusion, and the coverage was so broad.”

Another example, according to Zola, is that coverage could possibly be voided if certain individuals in a workplace knew about the alleged harassment.

“The real question is going to be who does the policy identify as being a person whose knowledge is sufficient to exclude coverage,” Zola said. “The language is different on policies, but some typical language is fact, circumstance, situation or event that reasonably would be regarded as a basis for a claim. That language being imprecise, I think, is fertile grounds for factual disputes as to when a company or officers or directors of a company should have known that a claim was likely based on the knowledge they had at the time.”

Zola says this can be seen in the media allegations that some “bad actors” had certain reputations for activities that would be considered sexual harassment. “The question is who at the company knew about that reputation and whether rumor and reputation are sufficient to exclude a claim based on the policy language,” Zola said.

The size of the claim makes a difference when it comes to knowledge-based exclusions, he added.

“The claims that I’ve handled in the past involving sexual harassment allegations, there was no media spotlight on them, and so, there wasn’t this deep-dig by the media and by the public into what people at the company knew or didn’t know about the allegations,” Zola said. Even so, an employer’s knowledge of harassment by an alleged harasser is a defense that the insurance companies will pursue through discovery rather than in the media, he said.

Other lines of insurance, including directors and officers (D&O), could potentially be involved as well.

“The idea with D&O policies is, especially for public companies, if there are widespread allegations, that the directors or officers failed to protect their fiduciary obligations to the shareholders by allowing a culture of impropriety,” Zola said.

When allegations are made, stock prices may drop, which can lead to “very serious derivative suits” that could be covered by D&O insurance.

Zola says general liability could be another line to come into play for allegations of bodily injury in certain states. According to Zola, in states like New York, sexual harassment can rise to a level of emotional distress even without any physical touching. “This is considered bodily injury, as that word is used in a general liability policy. In all states, physical touching that leads to damages is considered bodily injury,” he said. “It depends on the allegations by the claimant, but it could implicate both of those lines as well.”

In Kelly’s view, general liability would have excluded this type of coverage, but the D&O coverage could play a role as it can in cyber.

“We saw this with cyber where there were cyber breaches but then there were follow-on derivative suits brought on behalf of the company against the board of directors for failing to put the proper controls in place to prevent a breach,” said Sompo International’s Kelly. “You could have the exact same type of derivative suit for failing to supervise the CEO of the company who is a known harasser or failing to remove that person if there was a known event that occurred, and the board didn’t act appropriately.”

Time to Review

Lockton’s Gelot said this is a time for employers and agents/brokers to review policy wording carefully.

“You have some policies today that have specific wording meant to narrow the scope of covered sexual harassment – and those policies would drive a clear distinction between behavior that is insurable versus behavior that is so egregious that to insure it would be offensive or outright against public policy,” she said. That might include wording in some policies that the policy will cover “everything except harassment that is deemed licentious or immoral or sexual abuse or exploitation or abuse of child.” Not all policies contain such wording, she said.

EPLI Going Forward

The disturbing recent spate of workplace sexual harassment complaints could have positive effects for the industry and the EPLI market as well, experts say.

“Anytime there’s a major event in any line of insurance, it always raises awareness,” said Kelly. “Major senior level execs and the boards are even being called out on what they are doing (to prevent such behavior) and they are asking what kind of EPLI coverage do we have?”

These executives better make sure that they not only have EPLI coverage, but also that their limits are adequate, Kelly said, noting that this type of questioning is going to drive more demand in the market and potentially higher limits.

In 2016, gross written premium for EPLI was $2.1 billion, according to MarketStance, and it estimates a possible bump to $2.3 billion or more for 2017-2018.

There are many smaller employers that still do not purchase the coverage. Roughly seven out of 10 businesses don’t carry EPLI, according to

But just how market growth will be affected following the attention on sexual harassment in the workplace remains to be seen, Betterley said. Small commercial accounts, while forecast to grow most rapidly over the next year, have the lowest take-up rates for EPLI coverage, he said.

“I think it (the recent attention) will have an impact,” Betterley said. “I don’t know that I’ve seen it just yet. One impact perhaps is that if you’ve got a potential insured that has not been buying EPLI, now they will want to buy.”

Those employers that haven’t purchased the coverage might get a tougher reception from insurance markets, he added. “The underwriter is going to be really interested in the why now? A good answer, I guess, would be, ‘Have you read the newspaper?’” While insurers may be glad to gain more insureds, they may be more cautious about taking on employers that until now haven’t been buying coverage, he said.

Hiscox’s Mitchell says it’s difficult to predict how EPLI insurers will react to a rise in sexual harassment claims in 2018, but it’s likely to be a mix of changes in premium rates, retentions and restructuring coverage. For now, one thing is certain. “It’s something all insurance companies will be monitoring closely,” he said.

NAPEO Risk Management Conference

Look forward to seeing everyone in a month.  We have some exciting announcements to share.


NAPEO’s 2018 Risk Management Workshop
March 22-23

JW Marriott Houston
5150 Westheimer Road
Houston, Texas, 77056

There’s still time to register for NAPEO’s 2018 Risk Management Workshop. Nowhere else will you find the PEO industry’s top risk managers, key insurance executives, regulatory experts, and policy makers gathered for such an in depth look at PEOs and workers’ compensation, so register today.
2018 Keynote Speaker Dustin Sachs is a computer forensics expert with extensive training in digital forensics, evidence handling, and computer investigations. Sachs’ keynote presentation, “Defending the Homeland: Understanding Cyber Attacks and Mitigation Steps,” will provide attendees with information and resources needed to respond to a cyber attack.

Understanding common attack vectors, and taking the measurable steps needed to prevent, detect, and respond are the key weapons in fighting those who would seek to do you harm. In this presentation, Sachs will discuss the common attack vectors, the tools available to assess your network infrastructure, and the steps that can be taken to help mitigate attacks when they occur. Attendees will leave with practical, often free or low cost, measures that can be implemented almost immediately.

You will not want to miss this session! You can find the full conference agenda here.

Stay tuned for an announcement next week about our new evening event happening this year, a great opportunity for fun and networking!

Questions? Contact Robin Schlesinger.

New Florida bill would help employees collect worker’s comp regardless of immigration status

A new bill in Florida will ensure folks will be paid who are injured on the job no matter if they used other people’s Social Security numbers or identification to secure a  job.
Rada Kleyman


 Christine Sexton, News Service of Florida on Wed, Feb 21, 2018

A Senate committee Tuesday narrowly approved a bill that would eliminate part of Florida law that allows employers to deny benefits to injured workers who use other people’s Social Security numbers or identification to obtain jobs.

Approved in a 6-4 vote by the Senate Banking and Insurance Committee, the bill (SB 1568) would eliminate a provision put into law in 2003 that made it felony insurance fraud for people to knowingly present false or misleading information about their identities for obtaining employment.

But another part of workers’ compensation law defines worker as “any person who receives remuneration from any employer … whether lawfully or unlawfully employed, and includes, but is not limited to, aliens and minors.”

Bill sponsor Gary Farmer, D-Fort Lauderdale, told the committee that the purpose of the bill is “to ensure that workers who are injured on the job, who were fulfilling their obligation, injured because of a dangerous workplace condition or something happened on the job, receive the benefits they are owed under the workers’ compensation system statute, regardless of what their immigration status might be.”

Farmer offered an amendment that he said cleaned up the original version, which he indicated “unnecessarily touched on some immigration statutes.”

“It was not our intent to alter any immigration laws of the state of Florida or the United States of America with this bill,” Farmer said. “This bill, again, is simply designed to ensure that workers who are injured on the job obtain the benefits they are due.”

Despite his assurances that the bill is a glitch bill to clarify existing laws, the measure drew opposition from Sen. Rob Bradley, R-Fleming Island; Sen. Denise Grimsley, R-Sebring; Sen. Doug Broxson, R-Gulf Breeze, and Sen. George Gainer, R-Panama City.

Committee Chairwoman Anitere Flores, R-Miami, and Sen. Rene Garcia, R-Hialeah voted with the four Democrats on the committee to approve the bill.

There is no House version of the bill, with less than three weeks left before the scheduled March 9 end of the legislative session.

The Naples Daily News reported last year that at least 163 immigrant workers in Florida were charged with felonies for providing false identification after they were injured since 2004. In at least 159 cases, their employers or insurance companies reported them. According to the newspaper, more than 80 percent of the injured immigrants reported between 2013 and 2016 worked for employee leasing companies or staffing agencies that recruit workers

Rich Templin, legislative and political director for the Florida AFL-CIO, told the committee that other than Florida and Wyoming, every state has separated legal status from workers’ compensation and called Farmers’ bill a “first step to correcting a terrible injustice.”

Farmer’s bill was one of two workers’ compensation-related measures the Senate committee approved Tuesday. The other measure (SB 1866), filed by Broxson, received unanimous support. It would allow large employers that have workers’ compensation premiums of at least $500,000 to purchase a “guaranteed cost workers’ compensation insurance policy” at a set premium that does not change, as well as an accompanying reinsurance policy.

The Property Casualty Insurers Association of America opposed the bill.

Alternatives to the standard workers’ comp marketplace

One of the things that make workers’ compensation such a challenge for employers and carriers is the long-tail nature of the claims. “Long tail” means that premiums collected today must cover losses for years to come. Nobody knows this better than the employers in the State of California.     Below are few other options for workers compensation outside the standard market option.


– Nelson Aldrich 

The workers’ compensation machine in California is an impressive beast. The standard workers’ comp market is the exclusive remedy for all workplace injuries and indemnity claims (lost wages) for over 500,000 employers. The system responded to nearly 800,000 injured workers in 2015.

On average, California is home to the highest workers’ comp rates in the country. This is driven by the greatest frequency of permanent disability claims, higher-than-average cost of handling claims and delivering benefits, and, of course, drastically higher medical treatment costs which are 60 percent higher per claim than the national average.
While indemnity claims in other states are trending downwards, it’s quite the opposite in California.

It’s a bleak picture, but it’s not all doom and gloom in the standard market. Rates have been trending downward for several years as the market continues to soften, and California has an experience rating system which works in favor of those employers who manage to keep claims low.

For some employers, the silver lining is just not bright enough to keep them in the standard market, and many are beginning to ask what else is out there. Perhaps you, too, have grown weary of rate changes as the market swings from hard to soft, then back again. Maybe the ever-changing appetites of workers’ comp carriers has you weary of switching insurance companies every couple years.

If those sentiments resonate with you, then you might be among the growing number of business owners who are looking for an alternative.

Let’s look at three of the most commonly utilized alternatives to the standard market, starting with group captives.

Group captive
A group captive is an insurance company that is owned and controlled by its members. You might be a good fit for a group captive if you have a desire for control and an entrepreneurial spirit, own a financially strong enterprise, have a demonstrated commitment to safety and loss prevention and a better-than-average loss experience for your industry group.

A unique feature of group captives is that general liability and auto liability can be rolled into the same program. This model begins to make sense for those employers who are paying annual premium in excess of $100,000 for workers’ comp, general liability and auto liability combined. The most attractive features of the group captive solution generally fall into two categories: Control and Share of Profit.

What does it mean to have control over your own insurance program? It means that your own loss history dictates the premium you will pay. It also means that as an owner, you have a say in how the insurance company operates, what services will be provided to members and who else gets in the group.

Having a share in underwriting profits is self-explanatory. However, consider this: If there wasn’t money in the California insurance industry, we wouldn’t see folks like Warren Buffett rushing to enter the marketplace. Buffett’s Berkshire Hathaway has grown in recent years to the largest writer of workers’ comp insurance in California, next to the State Fund.

As premium dollars sit in reserve waiting to be paid out, owners of Fortune 500 insurance companies reap the profit from interest earned, and the same is true for members of group captives. While there is a risk-sharing element with all group captives, a close examination shows that risk sharing is contractually capped and a very small component of the overall funding model.

PEO model
Another popular alternative to the standard market is the PEO option. A PEO is a professional employer organization, and it can take many forms. You might like the idea of joining a PEO if you are looking to consolidate your payroll, human resources, workers’ comp, loss control and even group health insurance into one solution.

Generally speaking, PEO’s might be a good fit for owners who want more time to work on their business as opposed to in their business. As an alternative to the standard workers’ comp market, PEO’s often open doors for employers in riskier industries who have been left with State Fund as their only option.

Perhaps it’s a consistently high experience mod, or simply the nature of the work you do that has historically left you with few options. Chances are, with a little digging you will find a PEO solution that both lowers premiums and provides services that will help keep your employees safe.

One thing to keep in mind is that lower premiums are just the tip of the PEO iceberg. To fully realize their utility, business owners should be looking for a PEO partner who will decrease admin burdens, provide valuable consulting, and lower the overall cost of doing business.

Self-insured groups
Self-insured groups are regulated alternatives to the standard marketplace, and they are approved by the State of California to provide workers’ comp benefits to their members. Historically, self-insured groups see an influx of interest when markets are hardening, and rates are increasing in the standard market.

These groups are generally homogenous, meaning similar risks are placed into a single self-insured industry group. As with a group captive, there is a risk-sharing element in that each member is responsible for the performance of the group. However, the extent of that risk sharing is almost night and day when comparing a group captive to a self-insured group. Some self-insured groups have found a way to engineer away risk sharing with reinsurance, but often times the idea of joint and several liability is just too much for some business owners to accept.

You might like the idea of a self-insured group because you are chasing premiums that are more predictable and almost always lower than the standard market. You might also like the idea of a tight group of top-performers comprising the membership, which also lends itself to lower premiums. Self-insured groups are generally known for offering expert consulting for risk profiles specific to their members, in addition to aggressive claims handling.

With the reward of lower, more stable premiums comes the risk that your self-insured group might be hit with an assessment. An assessment simply means that claims were too high, and more money is required to pay the bills. It’s also possible that another member might become insolvent, and those left in the group might be on the hook for his share of the premium.

Even with the higher degree of risk, certain industry groups such as contracting, healthcare, farming, food processing, and livestock management tend to have a strong and growing membership within self-insured groups. As compared to group captives, self-insured groups have lower bars to entry and should be considered as an option for those employers who want alternatives but might not be ready for the captive option financially or with respect to their loss history.

As healthcare costs continue to bloom and wages continue to increase, it’s more likely than ever that the standard market will begin to harden soon. A hardening market means tougher underwriting guidelines, increasing rates, and more restricted appetites. In other words, the standard market menu is likely to feature less options and higher cost just around the corner.

Now might be the perfect time to consult with your risk management professional and join the growing number of business owners who are demanding alternatives. It’s critical to choose a partner who both understands and has access to all available options. Don’t forget to be vocal about your expectations and business goals. While the alternative marketplace might not be a fit now, the right risk management partner can help you prep for entry into an alternative program that better aligns with your long term goals




Lori Lucas to Lead Benefits Data Powerhouse

Who is the Employee Benefit Research Institute and what do they do?

Both Republicans and Democrats rely on EBRI’s  canvas data and economic analyses to understand how employers’ benefits programs are working, or not working. In recent years, EBRI reports have helped policymakers’ understand how workers have been using health savings accounts and what are the long term trends.


By Allison Bell
Insurance Editor

Lucas was Hewitt Associates’ retirement research director.  Lori Lucas is now the head of a think tank that shapes how people in Washington think about health insurance and retirement savings programs.

The board of the Employee Benefit Research Institute has named her to be the group’s new president and chief executive officer.

Lucas succeeds Harry Conaway, who has been EBRI’s interim president since 2015.

EBRI is a Washington-based research institute that was founded in 1978. Both Republicans and Democrats rely on EBRI’s survey data and economic analyses to understand how employers’ benefits programs are working, or not working.

In recent years, for example, EBRI reports have helped policymakers’ understand how workers have been using health savings accounts, and how many workers in each age group have started preparing for retirement.

The group’s reports influence federal work on individual retirement accounts and other individual retirement savings programs as well as federal efforts to improve employer-sponsored retirement plans.

The Future

Lucas said in a statement that she’d like to see EBRI do research on financial security benefits, such as student loan benefits and emergency fund benefits, as well as on traditional health and retirement benefits.

She also talked about the need to maintain EBRI’s reputation for objectivity.

“My goal is to continue EBRI’s focus on unbiased data and research that is critical in today’s evolving employee benefits environment,” Lucas said.

Lucas’s Past

Lucas has a bachelor’s degree from Indiana University and a master’s degree from the University of Illinois. She started out as an analyst at Morningstar Inc.

Later, she served as a pension benefits consultant, and then as director of retirement research, at Hewitt Associates, when Hewitt Associates was a major provider of benefit plan data in its own right. In 2005, for example, she was talking about many U.S. employers’ general lack of interest in retirement benefits.

In 2006, Lucas became the head of the defined contribution plan practice at Callan, a San Francisco-based institutional investment consulting firm.

Lucas has been involved with EBRI since 1999. She recently served as the group’s vice chair.