• It appears that although rate reductions countrywide have been at historic levels and combined ratios for the carriers that service the business were at the second best is the last 50 years in 2018. While these are generally signs that the market will be corrected, it is anticipated that due to claims reserve redundancy, the end of the soft market is not in sight. from workcompcentral.com

Friday, March 29, 2019

Healthy Reserves May Help Extend Comp’s Profitability, Analysts Say

• By Elaine Goodman
• National
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The workers’ comp industry had excess loss reserves estimated at $4.7 billion at the end of 2018, according to new report from A.M. Best, and some analysts say that will provide a cushion to help extend the insurance line’s streak of profitability.

Robert Hartwig

The workers’ comp reserve excess, which analysts refer to as a redundancy, is in contrast to some other insurance lines detailed in the report that are experiencing a reserve deficiency. Those include commercial auto liability, with a $2.2 billion deficiency, and a products liability category, with a $5 billion deficiency.

The figures represent the “undiscounted” reserve, which includes factors such as the amount of interest the money will earn.

While $4.7 billion might sound like a hefty sum, it represents less than 3% of the workers’ comp net loss and loss adjustment expense reserves, which total about $165 billion, according to Thomas Mount, a senior director for A.M. Best rating services and author of the report.

Still, the extra $4.7 billion is nice to have for an insurance line that’s known for its volatility, said Robert Hartwig, director of the Center for Risk and Uncertainty Management in the Darla Moore School of Business at the University of South Carolina. As recently as 2011, workers’ comp was running a combined ratio of 115%, representing an underwriting loss, and reserves were deficient, Hartwig noted.

Hartwig said the reserve redundancy should be viewed as “a prudent cushion in an inherently volatile line — a line in which reserves can transition from redundant to deficient quickly relative to shorter-tail lines.”

When insurers feel comfortable that a portion of reserves won’t be needed, that amount can be released and applied toward earnings, something that Hartwig said has been happening gradually in workers’ comp. Hartwig said he expects to see “continued modest releases” over the next few years.

“The $4.7 billion redundancy makes it highly likely that reserve releases in this line will continue, bolstering the WC line’s underwriting performance and its overall profitability,” Hartwig said.

Reserves are set based on projections of the amount that will be needed to pay claims into the future. As time goes on, it may turn out that the estimate is too low to cover actual claim costs, resulting in a reserve deficiency, or too high, producing a reserve redundancy.

Timothy Mosler, a director and consulting actuary with Pinnacle Actuarial Resources, said a decline in claim frequency is one contributor to the workers’ comp reserve redundancy. Even after claim frequency falls, he said, insurers will take a cautious approach to reducing reserves. That’s because it’s not immediately known whether frequency has fallen for low-cost claims or high-cost cases.

Another factor is that medical severity has been increasing at a slower rate, according to Mosler, who attributed the trend to insurers’ implementation of cost containment measures.

Workers’ comp has experienced four straight years of underwriting profitability, and the reserve redundancy likely means “the good times will continue a bit longer,” Mosler said.

“With reserve redundancy, it’s reasonable to expect a postponement to the unprofitable times,” he said.

According to A.M. Best, workers’ comp reserve development has been favorable each year since 2011, ranging from $300 million in 2011 to about $2 billion in 2015 and 2016. Favorable reserve development then more than doubled in 2017, to $4.3 billion.

Mount, at A.M. Best, said the workers’ comp reserve redundancies are spread across most WC insurers.

He said that “only time will tell” what ultimately happens to the current $4.7 billion redundancy. And for each insurer, the answer may be different.

“Some insurers may release it into earnings in lieu of taking rate increases, thereby keeping the calendar year results profitable while the accident year deteriorates,” Mount said.  

In another possibility, Mount said, multi-line insurers might use the workers’ comp redundancy to bolster reserves in a line that has a reserve deficiency.

And if claim costs turn out to be higher than what was estimated in calculating the reserve, some of the redundancy could be used to cover the higher-than-estimated liabilities, he said.

A.M. Best recently completed a special report contemplating the opportunities and potential liabilities for insurance companies looking to take on risk affiliated with the emerging marijuana market. Similar to the advent of cyber liability, it will likely take some time before participating carriers develop a sound understanding of the exposures, corresponding coverages, and appropriate limits the players in the industry will need.

Insurance Journal released the following exam of the A.M. Best report.

https://www.insurancejournal.com/news/national/2019/03/14/520607.htm

Insurers Remain Cautious About Marijuana Insurance Market

March 14, 2019

The marijuana industry is an opportunity for insurers as more states have legalized the drug. But there are still risks in play that could limit wider carrier participation, A.M. Best said in a new report.

One of the key barriers is the federal government still classifies it as a controlled substance, continuing its status as an illegal drug even as individual states increasingly legalize its use.

“Those directly and tangentially involved in the industry need insurance that addresses the specific needs of growers, retailers, distributors, property owners and lab researchers,” the A.M. Best report says. “However, despite growing demand from both producers and retailers alike, many carriers are reluctant to embrace the industry, owing to its classification as a Schedule I drug in the eyes of the U.S. federal government, under the Controlled Substance Act of 1970.”

Because marijuana is not legal at the federal level, some carriers see marijuana insurance as a “debatable” move, A.M. Best said.

Legality Grows

The market for marijuana is as wide as it’s ever been in the United States, with 33 states and the District of Columbia now allowing the use of medical marijuana. Out of that number, 10 states plus D.C. also legalized recreational marijuana use (Canada made it legal as well in late 2018).

The A.M. Best report identifies a number of marijuana-related market segments that need insurance coverage. They include cultivation, dispensaries and retailers, infused products and landlords. Some insurers have responded. Approximately 25 carriers (mostly non-admitted) provide coverage in the space in both the U.S. and Canada, A.M. Best said. The Lloyd’s Market offers coverage in Canada but doesn’t offer coverage to businesses in the U.S., because the federal government still considers it illegal.

Carriers that have entered the market are typically partnering with “agencies and producers that have a better understanding of the industry and the needs of cannabis businesses,” A.M. Best said. One example: Topa Insurance Group, which supports Cannasure, an Ohio-based MGA and wholesale brokerage solely focused on the cannabis industry.

Existing Coverage Limited

Insurers that are just entering the market offer basic policies that typically cover: commercial general liability, with limits of $1 million per occurrence/$2 million aggregate; property liability and product liability, both with limits of $1 million per occurrence/$2 million aggregate, A.M. Best said. The ratings agency warned that these limits may not be enough for marijuana business owners, who may need higher aggregate limits.

Even insurers that jump in remain cautious.

“Because this is an emerging market for insurance companies, insurers believe that their risk in these businesses is best managed with their current limits. Another reason for the low limits is the challenge of finding reinsurers to back marijuana-related books of business, as reinsurance is typically a separate book or tower to cover these risks,” A.M. Best said.

A.M. Best warned that shared limits between general liability and product liability, plus non-stacking endorsements and policies that often lack a duty to defend remain problems for marijuana businesses.

Insurers, if they can address these obstacles, stand to gain plenty by embracing coverage in the marijuana space. A.M. Best noted that the industry (medical and recreational) produced $8 billion in sales in 2017, while sales of illegal marijuana hit the $42 billion mark.

Some projections call for legal marijuana sales to reach $22 billion by 2022, with illegal sales of the drug to drop to less than $5 million over the same period, as more states legalize use of the drug.

A.M. Best’s full report is “Cannabis: New Opportunities for Insurers, But with Burgeoning Risks.”

Source: A.M. Best

I personally love reading articles from the past and comparing them to the present time. Below is an article published in Inc Magazine on August 30th, 2017.

I believe many of the factors stated in this article are still very relevant. PEO’s are still looked over from businesses as they are not educated on what a PEO can offer. In 2017 there were 907 operating PEO in the United States and with the rise of new PEO’s with specialty niches coming along there is a PEO for everyone.

Tips for choosing a PEO:

• Determine your business’s HR and risk management needs, and narrow your candidate list to PEOs that can meet them.
• Ascertain the financial strength and security of the PEO candidate. Its financial statements should be independently audited by a CPA; risk management practices should be independently certified; and operational, financial, and ethical practices should be independently accredited.
• Meet the people who will be serving you, and ask for client and professional references.
• Understand the PEO’s benefits plan options. Analyze the PEO’s service and cost structures

Professional employer organizations (PEOs) offer a stunning array of potential benefits to small and midsize businesses (SMBs), especially those in growth mode. Research commissioned by the National Association of Professional Employer Organizations (NAPEO) documents that PEO clients grow faster, have lower rates of employee turnover, and have higher rates of business survival than their peers. Businesses that use a PEO gain a competitive advantage in attracting the best employees. Often, PEOs allow them to offer a higher level of benefits than they would be able to afford on their own. Most importantly, offloading responsibility for HR, payroll, benefits, workers’ compensation, and other administrative tasks to a PEO frees up leaders to focus more of their time and energy on their core competencies and strategic issues. “With a single stroke of the pen, the owner of a small or midsize business can dramatically improve the odds of his or her success,” says Richard G. Rawson, president of Houston-based Insperity. “That’s what a PEO does.” When a business signs on with a full-service PEO, it gains an “instantaneous HR infrastructure that provides a significant amount of administrative relief.”

Lack of awareness of PEOs The PEO model has been around for some 30 years, but for all PEOs have to offer, there is still a surprising lack of awareness about them among many businesses. NAPEO’s research shows that 14-16 percent of businesses with 10-99 employees currently partner with a PEO, but many more could benefit from doing so. “Raising awareness of PEOs and what they can do for growing businesses is our top priority at NAPEO,” says Pat Cleary, the association’s president and CEO. “Business owners who weren’t aware of PEOs are often astounded when they hear about the advantages PEOs can provide. So much so, in fact, that one of the first questions they often ask is, ‘Is it legal?’” Unlike other types of outsourced services providers, PEOs enter into a relationship called “co-employment” with their clients. Under that arrangement, employees work for both the client business and the PEO. As the co-employer, the PEO manages all personnel-related functions, such as wage and benefits administration, workers’ compensation, etc., filing under its own tax employee identification number (EIN). The client company maintains control of all business decisions and operations. That’s been a difficult concept for some business owners to grasp, but a recent development may help on that front. Beginning June 1 of this year, the IRS began issuing Certified Professional Employer Organization designations to PEOs that complete a certification process laid out in the Small Business Efficiency Act.

A stamp of legitimacy The CPEO designation adds a stamp of legitimacy to the industry because it formalizes the IRS’s recognition of the co-employment model. It protects PEO clients by explicitly stating the CPEO’s sole liability on wages paid to worksite employees. It provides CPEOs with successor employer status for federal payroll taxes, eliminating the potential for double taxation of FICA and FUTA when a business signs up partway through a tax year. It also clarifies businesses’ continued eligibility for specified federal tax credits while using CPEO services. “Certification is another arrow in the quiver to answer the ‘is it legal’ question,” Cleary says. “Now we can tell a CEO to go online and Google section 3511 of the tax code. That’s us; we’re in the code.” The Employer Services Assurance Program (ESAC), which was developed by NAPEO and launched in 1995 as an independent, nonprofit organization, is another PEO accreditation program, and it is more comprehensive than CPEO. Through a program of bonding and regular financial audits, ESAC provides assurance of a PEO’s performance across all its employer responsibilities, including federal and state employment taxes, contributions to employee retirement plans, and payment of health and workers’ compensation insurance premiums.

A PEO for every need There are many different types of PEOs. Some have national or regional operations; others work within a single state. Some even focus on specific industries, such as Execustaff HR, a San Jose, California-based PEO that specializes in Silicon Valley’s high-tech industry. “Our clients are generally startups or early-stage tech and professional companies that want to attract highly-skilled employees from established companies. They need a Fortune 500-level benefits package to do that, but it’s hard to get at that size,” says Jason Mann, Execustaff HR’s president. The PEO provides a “plug-and-play” platinum-tier benefits package that includes medical, dental, vision, disability, 401(k) plan, and more. “Our companies can put those things in their offer letters and attract the top talent. That’s one of the biggest advantages we offer them.” Bison PEO, based in Peachtree Corners, Georgia, works at the other end of the employment spectrum. “We have niche markets that we focus on,” says founder, president, and CEO Wesley Owens. “We’ve worked in staffing, agriculture, trucking, and construction, so we’ve done some of the industries that are a little more challenging to some of the larger PEOs.” Bison works closely with a third-party administrator to manage workers’ compensation claims and help control costs. “That’s very important to growing businesses in the sectors we serve,” he says. Insperity, one of the first in the industry to attain CPEO status, has 61 offices across the U.S. and more than 2,600 corporate employees. It serves 100,000-plus businesses with more than 2 million employees. “Our competitive differentiators have to do with the breadth and depth of our products and services and the level of care we provide,” Rawson says. Insperity started out by creating and delivering a service, and it developed a very customer-centric culture, Rawson says. “Today, we also provide an industry-leading technology platform, but we apply the same customer-centric service approach to that aspect of our business. We understand that every worksite employee is a key asset to that business, and we treat every one of them like our own.”

An “MBA on steroids” Partnering with the University of Houston’s C.T. Bauer College of Business, Insperity has created a certification program for its Business Performance Advisers that Rawson describes as “like an MBA on steroids.” The curriculum focuses on providing a thorough command of the success drivers for small and midsize businesses, from top-line sales growth to bottom-line profits. Business Performance Advisers who complete the program enhance their expertise to offer impactful guidance on strategic business decisions to Insperity’s clients. Clearly is convinced that growth-oriented businesses will partner with PEOs in increasing numbers as awareness of the advantages PEOs offer continues to spread. “Time is finite, and every hour you spend on a non-core activity like HR administration is time away from growing your company,” he says. “We have all this research that shows PEO clients grow faster, have higher survival rates, and experience less employee turnover. Outsourcing of everything that’s not core to your business is a global trend, and that’s going to drive PEO growth.”

https://www.inc.com/brandedcontent/peos-have-much-to-offer-growing-businesses.html?cid=search

Cyber security threats and trends can change year over year as technology continues to advance at alarming speeds. As such, it’s critical for organizations to reassess their data protection practices at the start of each new year and make achievable cyber security resolutions to help protect themselves from costly breaches.

The following are resolutions your company can implement to ensure you don’t become the victim of a cyber crime:

1. Provide security training—Employees are your first line of defense when it comes to cyber threats. Even the most robust and expensive data protection solutions can be compromised should an employee click a malicious link or download fraudulent software. As such, it’s critical for organizations to thoroughly train personnel on common cyber threats and how to respond. Employees should understand the dangers of visiting harmful websites, leaving their devices unattended and oversharing personal information on social media. Your employees should also know your cyber security policies and know how to report suspicious activity.
2. Install strong anti-virus software and keep it updated—Outside of training your employees on the dangers of poor cyber security practices, strong anti-virus software is one of the best ways to protect your data. Organizations should conduct thorough research to choose software that’s best for their needs. Once installed, anti-virus programs should be kept up to date.
3. Instill safe web browsing practices—Deceptive and malicious websites can easily infect your network, often leading to more serious cyber attacks. To protect your organization, employees should be trained on proper web usage and instructed to only interact with secured websites. For further protection, companies should consider blocking known threats and potentially malicious webpages outright.
4. Create strong password policies—Ongoing password management can help prevent unauthorized attackers from compromising your organization’s password-protected information. Effective password management protects the integrity, availability and confidentiality of an organization’s passwords. Above all, you’ll want to create a password policy that specifies all of the organization’s requirements related to password management. This policy should require employees to change their password on a regular basis, avoid using the same password for multiple accounts and use special characters in their password.
5. Use multi-factor authentication—While complex passwords can help deter cyber criminals, they can still be cracked. To further prevent cyber criminals from gaining access to employee accounts, multi-factor authentication is key. Multi-factor authentication adds a layer of security that allows companies to protect against compromised credentials. Through this method, users must confirm their identity by providing extra information (e.g., a phone number, unique security code) when attempting to access corporate applications, networks and servers.
6. Get vulnerability assessments—The best way to evaluate your company’s data exposures is through a vulnerability assessment. Using a system of simulated attacks and stress tests, vulnerability assessments can help you uncover entry points into your system. Following these tests, security experts compile their findings and provide recommendations for improving network and data safety.
7. Patch systems regularly and keep them updated—A common way cyber criminals gain entry into your system is by exploiting software vulnerabilities. To prevent this, it’s critical that you update applications, operating systems, security software and firmware on a regular basis.
8. Back up your data—In the event that your system is compromised, it’s important to keep backup files. Failing to do so can result in the loss of critical business or proprietary data.
9. Understand phishing threats and how to respond—In broad terms, phishing is a method cyber criminals use to gather personal information. In these scams, phishers send an email or direct users to fraudulent websites, asking victims to provide sensitive information. These emails and websites are designed to look legitimate and trick individuals into providing credit card numbers, account numbers, passwords, usernames or other sensitive information. Phishing is becoming more sophisticated by the day, and it’s more important than ever to understand the different types of attacks, how to identify them and preventive measures you can implement to keep your organization safe. As such, it’s critical to train employees on common phishing scams and other cyber security concerns. Provide real-world examples during training to help them better understand what to look for.
10. Create an incident response plan—Most organizations have some form of data protection in place. While these protections are critical for minimizing the damages caused by a breach, they don’t provide clear action steps following an attack. That’s where cyber incident response plans can help. While cyber security programs help secure an organization’s digital assets, cyber incident response plans provide clear steps for companies to follow when a cyber event occurs. Response plans allow organizations to notify impacted customers and partners quickly and efficiently, limiting financial and reputational damages.

Brokers Briefcase 2019- Libertate