Southern California Blues

In a not so shocking report, it appears that the LA Basin has higher frequency and severity.  Those playing in that market need to price for it….thanks to our friends at the Insurance Journal…

Indemnity claim frequency is significantly higher in the Los Angeles basin and significantly lower in the San Francisco area after controlling for regional differences in wages and industrial mix, according to a report the Workers’ Compensation Insurance Rating Bureau released Wednesday.

Claim frequency in the Los Angeles and Long Beach region was almost 33% higher than the statewide average, according to the report. Frequency was lowest in the Peninsula/Silicon Valley area, which came in about 28% below the average claim frequency for the state.

Medical-legal costs and paid allocated loss adjustment expenses in the Bakersfield and Los Angeles regions are also significantly higher than in the remainder of the state, according to the report.

WCIRB also reports that the share of open indemnity claims has decreased substantially in all parts of the state since 2013. The largest decreases were in the Los Angeles area, which had the highest initial rates of open claims.

The WCIRB will host a free webinar to discuss the 2019 study from 11-11:45 a.m. Dec. 12.

Another Actuarial Recommendation Refuted

The State of New Jersey’s Insurance Commissioner has overruled and improved upon the recommendation given by the New Jersey Compensation and Inspection Bureau (NJCRIB).  NJCRIB is the exclusive rating bureau for New Jersey.  This comes on the heals of the Florida Commissioner refuting and improving upon the rate decrease suggested by the National Council of Compensation Insurance (NCCI).  As modeling for this line are frequency-driven and thus pretty consistent, these types of deviations are not usual.

From our friends at insurancejournal.com

Commissioner Overrules Rating Bureau; Approves 5.8% Decrease in Rates

Another state’s insurance commissioner has overruled a rating agency and forced a larger decrease in in workers’ compensation overall premiums.

Marlene Caride

Marlene Caride

The New Jersey commissioner of banking and insurance, Marlene Caride, last week announced that she had approved a 5.8% decrease in rates and rating values for 2020. That’s two percentage points greater than what the New Jersey Compensation Rating and Inspection Bureau recommended in September, the bureau reported.

The average rate change for industry groups ranges from a 4.5% decrease for office and clerical, to a 7.7% decrease for contracting. The commissioner’s approval marks the fourth straight year that rates in New Jersey have dropped, due to what industry experts have said is a nationwide trend toward fewer injuries and fewer claims by workers.

The rating bureau’s filing was based on three policy years and recent adjustments to benefit levels.

The New Jersey commissioner’s action comes three weeks after Florida’s insurance commissioner demanded — and received — a larger loss cost decrease from the National Council on Compensation Insurance.

The NCCI had recommended a 5.4% decrease for 2020, but Florida Commissioner David Altmaier asked the council to examine another year of experience and revise its filing to a decrease of 7.5%. The NCCI complied, and the decrease was approved Nov. 6.

The New Jersey rates take effect Jan. 1.

A 7.5% Workers’ Compensation Rate Decrease Has Been Approved By The OIR

HOT OFF THE PRESS from our friends at NAPEO!

TALLAHASSEE, Fla. –  Florida Insurance Commissioner David Altmaier has issued a Final Order granting approval to the National Council on Compensation Insurance (NCCI) for a statewide overall decrease of 7.5% for Florida workers’ compensation insurance rates. This applies to both new and renewal workers’ compensation insurance policies effective in Florida as of January 1, 2020.

“Florida is an ideal place to do business and I am committed to keeping our workforce and economy strong. This decrease in workers’ compensation rates is very good news for employers and one more reason for companies to be located in our great state,” said Governor Ron DeSantis.

“Florida businesses are the backbone of our economy and when they see cost savings, our local communities benefit. Affordable workers’ compensation insurance means more workers are protected. It is great to see the costs of this coverage continue to decrease for those businesses who call Florida home,” said CFO Jimmy Patronis.

“I am pleased to issue this order, reducing workers’ compensation rates for Florida’s businesses, providing another year of rate relief. Increased innovation in workplace practices and continued emphasis on safety for employees has meant a decline in the workers’ compensation claims and Florida businesses will see the results of those efforts reflected in their insurance rates,” said Insurance Commissioner David Altmaier.

Commissioner Altmaier approved the NCCI amended rate filing, which met the stipulations of the Order on Rate Filing issued by the Commissioner on October 24, 2019.

For more information about the NCCI public hearing and rate filing, visit OIR’s “NCCI Public Rate Hearing” webpage.​ 

The Florida Office of Insurance Regulation has primary responsibility for regulation, compliance and enforcement of statutes related to the business of insurance and the monitoring of industry markets. For more information about OIR, please visit our website or follow us on Twitter @FLOIR_comm.

Sponsored by Libertate Insurance Services, LLC

Why James River Insurance Dumped Uber Account

Interesting article published today out of the Insurance Journal by Suzanne Barlyn about insuring Uber.  Not surprisingly, carriers continue to be perplexed with gig-economy exposures.

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A Bermuda-based insurer that recently severed ties with an Uber Technologies Inc. affiliate said on Thursday the risk of providing driver ride-hailing coverage had become too great and that it had mispriced policies during its initial years on the account.

James River Group Holdings Ltd said on Oct. 8 it would cut ties with a unit of Uber, its largest client, and cancel all related policies as of Dec. 31 this year.

Florida was an “outsized contributor” to the insurer’s Uber problems, especially in 2016, given a large number of uninsured and underinsured motorists, said James River Chief Financial Officer Sarah Doran in a call on Thursday with analysts to discuss its third-quarter financial results.

The insurer cut back on its exposure to Uber’s Florida market in 2017, Doran said.

James River boosted its cash reserves by a total of $57 million during the 2019 third quarter. Of that, $50 million was for 2016 and 2017 losses stemming from its Uber account, the insurer said.

James River late Wednesday said it withdrew $1.2 billion in funds held as collateral in a trust created by an Uber affiliate to cover current and future claims.

Insurance is one of the largest expenses for ride-share companies, an issue that many analysts cite as a risk for the ride-share industry’s profitability.

“In Uber, we wrote a new type of risk that originally seemed to be highly profitable,” J. Adam Abram, James River executive chairman and chief executive officer, said in the Thursday call.

But the nature of that risk changed as Uber rapidly expanded into new regions, added tens of thousands of drivers, and moved into other business lines, Abram said. Uber’s businesses now include food delivery and freight.

“Candidly, in some years, we mispriced the risk,” Abram said.

James River’s poor results for its Uber account in 2016 and 2017 spurred it to negotiate a “substantial pricing increase” for 2018 and charge similar rates for 2019, Abram said.

James River bought reinsurance for a third of the Uber account in 2019, but does not expect profits on the account for 2018 and 2019 to offset earlier losses, Abram said.

A new California law designed to limit the use of “gig” workers ultimately swayed James River to cancel the Uber account, despite coverage now being “well-priced,” Abram said.

The law, which goes into effect on Jan. 1, 2020, spells out when companies must treat “gig economy” contract workers, such as ride-hailing drivers, as employees. “We believe (it) will adversely alter the claims profile for ride-share companies,” Abram said.

James River expects to process about 18,500 Uber-related claims while winding down the account, Abram said.

INFINITI HR and Quad M Solutions, Inc.’s Wholly-Owned Subsidiary NuAxess 2, Inc. Have Executed a Definitive Agreement for Their New Joint Venture Company PrimeAxess, Inc.

lhttp://www.globenewswire.com/news-release/2019/10/15/1929865/0/en/INFINITI-HR-and-Quad-M-Solutions-Inc-s-Wholly-Owned-Subsidiary-NuAxess-2-Inc-Have-Executed-a-Definitive-Agreement-for-Their-New-Joint-Venture-Company-PrimeAxess-Inc.html

PEOs, Hamburgers, and Joint Employment

Happy Monday!  Re-publishing this fantastic update from Mike Miller regarding joint employment.

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Who would have thought that PEOs would have anything in common with McDonald’s, Hamburger University, and joint employment? Well, earlier this month a three judge panel of the United States Court of Appeals for the 9th Circuit issued a decision interpreting California law regarding a joint employment issue that PEOs will be able to utilize with regard to the bourgeoning number of wage claim cases in California and elsewhere that have been filed against PEOs. In this California case, the Plaintiffs, among other allegations, alleged that they were denied proper overtime premiums, meal and rest breaks, and other benefits in violation of the California Labor Code. Most significantly, the Plaintiffs also alleged that McDonald’s and its franchisee are joint employers and that McDonald’s is, therefore, liable for the wage violations. The district court had held that McDonald’s is not a joint employer of the franchisee’s employees and was not liable for these wage claims and had dismissed these claims in a summary judgment action. On appeal, the 9th Circuit affirmed the lower court ruling.

Similar to how PEOs operate, the franchisee, and not McDonald’s, selects, interviews, hires, trains, supervises, disciplines and fires its employees. The franchisee also sets the employees’ wages and their work schedules and monitors their time entries. There was no evidence that McDonald’s performed any of these functions. Interestingly, evidence in the record, if viewed in a manner most favorable to the Plaintiffs (as must be done in a summary judgment proceeding), would have permitted a finding that McDonald’s could have prevented some of the alleged wage-and-hour violations but did not do so, and yet this did not impact the Court in its decision.

Under the franchise agreement, McDonald’s required the franchisee to use its Point of Sale (“POS”) and In-Store Processor (“ISP”) computer systems every day. Managers of the franchisee took various courses at McDonald’s Hamburger University and then trained other employees on topics such as meal and rest break policies. The franchisee also voluntarily used the McDonald’s computer systems for scheduling, time keeping, and determining regular and overtime pay through applications that came with the IPS software.

Under the applicable California Wage Order, an employer is defined as one “who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person.” In construing this Wage Order, the California Supreme Court has set forth three alternative definitions as to what it means to “employ” someone. These three alternative definitions, any one of which can establish an entity as an employer, are as follows:

(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage, thereby creating a common law relationship.

With regard to whether McDonald’s exercises “control over the wages, hours or working conditions” of the employees of the franchisee, the 9th Circuit pointed out that McDonald’s does not “retain ‘a general right of control’ over ‘day-to-day aspects’ of work at the franchises.” The Court held that McDonald’s involvement with the workers did not represent control over wages, hours, or working conditions.

With regard to the “suffer or permit to work” definition of employer, here too McDonald’s did not meet the test for being an employer. In one of the more significant aspects for how this case may impact PEOs, the Court stated:

The question under California law is whether McDonald’s is one of Plaintiffs’ employers, not whether McDonald’s caused Plaintiffs’ employer to violate wage-and-hour laws by giving the employer bad tools or bad advice.

I have written previously about the importance of not referring to the manner in which PEOs do business in California as being the “leasing of employees.” The 9th Circuit gave credence to this position when it referred to a staffing agency supplying employees to another entity and having such a manner of doing business fit under the “suffer or permit to work” standard for being an employer. Clauses found in PEO Service Agreements stemming from the early days of the industry such as the PEO shall have the power to “withhold employees’ services from the client,” not only is not an accurate representation of the realities of the PEO/client relationship in 2019, but also is a worrisome clause. As the 9th Circuit pointed out in this decision, the determination of whether an entity is an employer under the “suffer or permit to work” standard turns in part on whether an entity has “the power to prevent plaintiffs from working.” Consequently, in California, a PEO’s not retaining or assuming “a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees” is crucial in avoiding the determination of employer status under California law.

Lastly, with regard to the third part of the test, “to engage, thereby creating a common law relationship,” the Court concluded that according to California common law “[t]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.” The Court stated that while perhaps arguably there was evidence that McDonald’s was aware that its franchisee was violating California’s wage-and-hour laws with respect to the franchisees employees, there was “no evidence” that McDonald’s had the requisite level of control over the Plaintiffs’ employment to establish a joint employer relationship.

While the Court went on to dispose of other peripheral issues, the Court’s discussion did not change the fact that McDonald’s did not have sufficient control to make it an employer. I have talked for many years about making sure your service agreements are 21st century service agreements and this case drives home the importance of updating service agreements.

DOL Issues New Salary Limits for Overtime Exemptions

OVERVIEW

On Sept. 24, 2019, the U.S. Department of Labor (DOL) announced a new final rule that updates the salary thresholds that some individuals must meet in order to qualify for a
minimum wage and overtime exemption under the federal Fair Labor Standards Act (FLSA). The final rule becomes effective on Jan. 1, 2020. The final rule affects the exemptions for executive, administrative and professional (EAP) employees, highly
compensated employees (HCEs), employees in the motion picture industry and individuals who work in various U.S. territories.

ACTION STEPS

The final rule’s Jan. 1, 2020 effective date leaves little time for employers to prepare for the changes. Employers should:

  • Determine which currently exempt employees have
    salaries below the new threshold; and
  • Decide whether to increase salaries for these
    individuals or reclassify them as non-exempt
    employees.

The 2019 Overtime Final Rule

As expected, this final rule includes updates to the standard salary level for the EAP and HCE exemptions and allows employers to count up to 10 percent of an employee’s nondiscretionary bonuses and incentive payments (including commissions) as part of the employee’s standard salary level. The rule also creates special standard salary levels for the exemption that applies to employees in the motion picture production industry and some U.S. territories. The table below shows the salary levels for the EAP and HCE exemptions that will apply on Jan. 1, 2020. The final rule’s salary levels are different from the 2016 rule and the 2019 proposed rule.

Nondiscretionary Bonuses

The final overtime rule will allow employers to use up to 10 percent of an employee’s bonuses to satisfy salary level requirements if:

  • The bonus, commission or other incentive pay is nondiscretionary; and
  • The employee receives this incentive pay at least annually (during any given year or 52-week period).

The final rule also contains a “catch-up” provision that enables employees to remain exempt when their nondiscretionary bonuses aren’t enough to meet the salary level required by an FLSA exemption. Under this new rule, employers must make a “catch-up payment” within one pay period at the end of the 52-week period before losing that employee’s exempt status. The DOL has warned that any catch-up payment “will
count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.”

Additional Updates

The final rule sets a special salary level of $380 per week for American Samoa, and sets a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Northern Mariana Islands. The rule also establishes a base rate threshold for employees in the motion picture producing industry of $1,043 per week. This new threshold can be prorated based on the number of days the employee has worked. The DOL intends to update the standard salary and HCEs total annual compensation levels more regularly in the future through notice-and-comment rulemaking.

DOL Issues New Salary Limits for Overtime Exemptions