Workers Compensation & PEO; Not all States are Created Equal

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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 Alerted to Fraud Scheme Targeting PEOs

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.”

Hope all is well —

Brian

 

 

 

MMC Poised to Become Reinsurance Goliath

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 (re)insurance business to be 40 percent bigger than rival Aon

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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.

MMC-JLT-top-line-40%-higher

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.

RiskMD is Granted a Patent

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”.

19% Workers’ Compensation Rate Decrease Proposed for Tennessee

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.

PEO Super Bowl 2018 – NAPEO

The industry Super Bowl has started in Phoenix, NAPEO 2018!

Right off an awesome WCI 360 in Orlando wci360.com, where the PEO industry was once again given a full day of programming in the largest insurance industry conference countrywide, Phoenix Is now the destination for all things PEO’s from today until Friday.  I am sure Mr. Cleary and team have their game faces on and will throw an awesome event as always.  Beautiful facility to start for sure.

Personally, I am celebrating my 18’th NAPEO and look forward to seeing all of my old friends that also have dedicated their respective careers to PEO.  Can’t wait to rock it out again with you, starting for some of us at the NAPEO Political Action Committee dinner this evening.

Florida Workers’ Compensation Rates Plummet Again

From our friends at workcompcentral.com…

NCCI Recommends 13.4% Rate Reduction

Two years after insurers and business groups warned of dire consequences from landmark Florida Supreme Court decisions on attorneys’ fees and benefit levels, workers’ compensation rates could soon drop to their lowest level in years.

Bill Herrle

The National Council on Compensation Insurance announced Monday afternoon that it is recommending a 13.4% decrease in rates for Florida, the second straight year that the rating organization has recommended a reduction in the state.

The cut comes two years after a 14.5% rate increase on the heels of Castellanos v. Next Door Co., which struck down statutory limits on attorneys’ fees, and Westphal v. City of St. Petersburg, which held that a 104-week cap on temporary disability benefits was unconstitutional.

If approved by the Florida Office of Insurance Regulation, the latest reduction will mean that workers’ compensation rates for next year will be about 10% lower than they were before the Castellanos and Westphal decisions. That’s roughly what the rates were before the 2003 reform package passed by the Florida Legislature that limited legal fees and benefits duration.

A small-business group predicted that Monday’s filing will spark economic growth.

“The small-business economy in Florida is hot, and it’s going to get a lot hotter as a result of today’s great news from NCCI,” said Bill Herrle, executive director of the National Federation of Independent Business in Florida. “Lower workers’ comp rates equal a direct reduction in small-business owners’ expenses, which means big things for growth.”

A claimants’ attorney said the filing simply puts rates back to their correct level, and that the court rulings have had a much smaller impact that insurers had feared.

“Attorneys’ fees are a product of how well an insurance adjuster handles claims,” said Mark Zientz, a Miami attorney who filed an amicus brief in the Castellanos case. “If they’re handled correctly, there’s no need for high attorney fees.”

The rate reduction shows that insurance carriers since Castellanos have been more careful with claims, which helps them avoid expensive litigation, he said.

The size of the recommended rate reduction was not surprising, Zientz said, because “from 2003 to 2015, rates were inflated for no good reason.”

An explanation of the filing from the NCCI notes that the rate reflects fewer losses by insurers, which is largely the result of a long-term and nationwide decline in the number of claims filed by injured workers.

Some claimants’ attorneys have said the drop in claims reflects a greater emphasis on workplace safety; shows that because of reduced benefit levels in some states, some workers don’t bother with filing claim; and shows that a growing number of U.S. workers are now considered independent contractors, not employees who receive benefits.

The NCCI did not dismiss the court rulings altogether but said that full impact of the two cases will not be known for years to come. So far, though, “the favorable loss experience in policy years 2015 and 2016 has more than offset the combined cost increases that have emerged from those court decisions.”

The NCCI obtained data from the state’s largest workers’ compensation carriers, and the data is consistent with NCCI’s initial assessment of how Castellanos would impact the Florida marketplace, the organization said. Most carriers reported some amount of claim cost increases, but many insurers were not materially affected.

The ratio of claimant attorney fees to benefit settlement amounts has climbed, from 13% in 2014 to 22% through June of this year, the NCCI filing said, quoting data from the Florida Division of Administrative Hearings.

Indeed, last week at the Workers’ Compensation Institute’s annual conference in Orlando, Florida’s Deputy Chief Compensation Judge David Langham presented data that showed the impact of Castellanos may be felt for a number of years.

Although the number of petitions filed in compensation claims has remained relatively flat for the past decade, claimants’ attorneys’ fees climbed 36% in fiscal 2016-2017, the year after the court ruling, Langham said at the conference. In 2017-2018, claimants’ attorneys’ fees increased another 7%.

Despite that, paid loss ratios have dropped significantly since 2010, most sharply since 2015, the NCCI filing data shows.

“The primary driver behind the recommended rate decrease is the long-term decline in claim frequency offsetting increases in claim severity, and cost increases from the Castellanos and Westphal court cases,” the filing’s explanatory memo reads. “Policy year 2017 will be the first full policy year post-Castellanos, but the full effects of that court decision will not materialize for several years to come.”

Also at the WCI conference last week, Florida Insurance Commissioner David Altmaier predicted that the expected NCCI rate recommendation would be the determining factor on whether legislation would be introduced next spring to address attorneys’ fees. On Monday, Altmaier’s office did not comment on the filing before the close of business.

If recent history is a guide, the lower rates may mean that a further attempt to cap attorneys’ fees will be all but forgotten in the 2019 legislative session. A 9.5% rate reduction earlier this year surprised many and took some steam out of employers’ demands for new limits on fees.

Herrle’s statement Monday did not mention the cost of lawyers.

“Small-business owners are reporting record high levels of optimism, according to NFIB’s Small Business Optimism Index, and news like lower workers’ comp rates fuels their confidence,” Herrle said. “Small-business owners are in the driver’s seat, and Florida’s economy can look forward to the results — increased job growth, increased wages, and unprecedented expansion overall for the small-business sector.”

Gradient A.I., spun out of Milliman, looks to midsize insurers for growth

We are very excited for our friends at Gradient A.I. and look forward to introducing their best-in-class predictive analytics model to our family, friends, clients and prospects. Congratulations Stan and team!

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Stan Smith, founder and CEO of gradient A.I., has acquired the company from its former parent, the insurance advisory firm Milliman.

Gradient provides predictive analytics and data warehousing services to insurance companies, powering its underwriting and claims-management models with AI. There’s a staff of about 20 who are coming with Smith in the new era of the company. Terms of the deal were not disclosed

Smith joined Milliman in 2013 to start gradient after launching a series of startups including a predictive modeling service for supply-chain management. Milliman decided to spin the unit out because it felt it didn’t dovetail with its consulting services.

“There wasn’t alignment, so I purchased what I didn’t already own from the business,” Smith explains.

Gradient’s current clients are risk pools, self-insured companies and small mutuals. These include the Connecticut Interlocal Risk Management Agency (CIRMA), The Builders Group and A.I.M. Mutual.

“It’s a tough space to start but if you prove yourself you can move up,” Smith says. “We’re fortunate that a lot of the clients we’ve worked with are happy to share knowledge and experience.”

The database that gradient works off of includes data from its clients, Milliman and other third-party sources. Smith says the company anonymizes information as much as it can, and segregates as needed depending on usage agreements. Now, the goal is to operationalize it for bigger clients.

“We’re seeing a pull from the midmarket — bigger than we initially targeted. These are carriers up to a billion dollars in premium,” Smith says. “Even companies with hundreds of millions in premium have a small number of anomalous outcomes. Having a big data set, because we started in Milliman, will help.”

Published by Digital Insurance

Author: Nathan Golia