Workers’ Compensation Industry Profits Continue to Rise, NCCI Reports

Wednesday, May 15, 2019

The National Council of Compensation Insurance (“NCCI”) just concluded their Annual Issues Symposium (“AIS”) in Orlando today. As always they did a fabulous job in reporting gobs of valuable data to help understand the cost and profit drivers of the workers’ compensation on a countrywide basis. “One of the most closely watched indicators — the combined ratio for comp carriers in the 38 states — declined, to 83% in 2018 from 89% in 2017, the report showed. The ratio, which has dropped steadily, from 110% in 2011, reflects the combination of loss and expense ratios, and is considered a key measure of financial health for insurers.” This is an unheard of profit margins for workers’ compensation insurers and will trigger even more softening in an already soft market —

Like a sports team on a years-long winning streak, the workers’ compensation insurance industry continues to put up record-breaking numbers, the top actuary for the National Council on Compensation Insurance said Tuesday at the council’s annual symposium.

Bill Donnell

Bill Donnell

The numbers, including a continued drop in combined ratio, an increase in profitability and a sustained drop in claims frequency, are so good, in fact, that some stakeholders are wondering if they’re watching a bubble about to burst.

“We have never seen this level of financial performance, and it is clear insurers are still trying to figure out why this is happening, when it will end, what will cause a change and what the warning signs will be,” blogged longtime industry analyst Joe Paduda, principal of Health Strategy Associates.

Even NCCI CEO Bill Donnell gave a nod to the horizon.

“After seven straight years of strong performance, people frequently ask me, ‘Are we in for a big swing in the other direction?’” Donnell said in his opening remarks at the State of the Line symposium in Orlando, Florida, on Tuesday.

He said he couldn’t predict the future but noted that more timely data and advanced analytics are making underwriting more accurate, and are reducing peaks and valleys in comp rates, and that helps create a stable marketplace.

The NCCI acts as the rating bureau for 38 states and releases their data annually at the symposium. Some larger states, including California, New York and Pennsylvania, are not NCCI states and are not included in the report. But the data are considered a strong measure of the health of the workers’ compensation system in the United States.

One of the most closely watched indicators — the combined ratio for comp carriers in the 38 states — declined, to 83% in 2018 from 89% in 2017, the report showed. The ratio, which has dropped steadily, from 110% in 2011, reflects the combination of loss and expense ratios, and is considered a key measure of financial health for insurers.

Net written premium, another key indicator, also improved. The number rose, from $45 billion in 2017 to $48.6 million in 2018, an 8.5% increase, NCCI’s chief actuary, Kathy Antonello, told the crowd.

The number has climbed almost every year since 2010. In 2018, the number climbed in part because of a change in federal tax law that made it less attractive to cede business to offshore affiliates, said Dean Dimke, communications director for NCCI.

The report also indicated that the overall reserve position for private carriers at the end of 2018 was a $5 billion redundancy — the first redundancy in reserves in 25 years. Pre-tax operating gains also climbed, from 23.6% in 2017 to 26% in 2018, well above the average of 7.2% for the last 20 years, the report shows.

Every NCCI state reported a drop in claim frequency from 2013 to 2017. Overall, claim frequency dropped almost 5% in 2017, but just 1% in 2018.

That 2018 figure, the smallest improvement in claims frequency in seven years, could reflect a bustling economy, said Steve Nichols, workers’ compensation manager for the Insurance Council of Texas. With more companies hiring and some industries facing a shortage of workers, more neophyte workers are on the job and are more prone to accidents, he said.

Looked at another way, although a strong economy has led to higher wages and larger payrolls for many employers, total loss cost reductions more than made up for that. Payroll increased, by 5.3% overall in 2018, but loss costs dropped almost 9%.

Almost every NCCI state approved a decrease in average premium levels for 2019. Tennessee led the way with a 19% reduction. Hawaii was the only increase, at 4.7%.

All of the rosy figures should now give pause to state legislators who may be contemplating reductions in indemnity or medical coverage as a way to cut costs for insurers and employers, claimants’ attorneys said.

“With profits at a record high, there is no need for any benefits for injured workers to be reduced,” said Tom Holder, president of the Workers’ Injury Law and Advocacy Group.

The State of the Line didn’t offer many negatives but did report that claim severity continues to increase — but not by much. Average indemnity claim severity rose overall, by 4.4% in 2017 and 3% in 2018, the continuation of a gradual but steady increase since 1998, the report said. It noted that the cost of claims has outpaced wage inflation significantly but did not give a reason for the increase.

Average medical lost-time claim severity grew more slowly, about 4% in 2017 and 1% last year, but still faster than a standard measure of health care prices, Antonello reported.

Workers’ comp is doing well, but not necessarily better than other lines of property and casualty insurance, the data show. Net written premium grew 8.5% from 2017 to 2018, which was slightly better than personal auto and homeowners’ lines, but well behind the growth in commercial auto and other liability, including product liability.

Overall, the property and casualty industry enjoyed a 10.6% growth in net written premium in the 38 NCCI states, the report said.

“Life is pretty great right now,” Paduda said. “We do know it will end. We do not know what will cause that event.”

Lightyear Capital Enters Purchase Agreement with Engage PEO


It has been quite an experience to watch Engage start 7 years ago as a start-up, grow to over a billion in payroll and now join hands with Lightyear. What tells me the best is yet to come –

Congratulations to Jay, Midge and the rest of the team!

05.01.2019 New York, NY – Lightyear Capital LLC (“Lightyear”), a New York-based private equity firm focused on financial services investing, announced today that investment funds affiliated with Lightyear have agreed to terms for the acquisition of Engage PEO (“Engage”), a professional employer organization providing HR outsourcing solutions to small and mid-sized businesses across the U.S. The company will continue to operate as Engage PEO, and the current management team will remain part of the ownership structure and in place with no operational changes impacting clients and brokers. The transaction is expected to close in the second quarter of 2019, and financial terms were not disclosed. 

“The PEO industry represents an attractive growth sector for Lightyear, one that we have been tracking for years,” said Mark Vassallo, Managing Partner of Lightyear. “Engage focuses on delivering the highest levels of quality service to its growing client base. We look forward to working with Jay and his management team to add to an already successful effort to grow their portfolio of clients and services.” 

Based in Fort Lauderdale, Florida, Engage PEO was founded in 2011 by CEO Jay Starkman. Built on its “expect more” philosophy, Engage’s human resource delivery team is unique in the PEO industry, combining the people skills of HR professionals with the technical and strategic savvy of legal professionals. Engage also embraces brokers and agents creating a partnership that translates to added value for their mutual clients. This innovative business model fueled the company’s expansion, resulting in Engage being named one of the fastest-growing private companies on Inc. Magazine’s annual Inc. 5000 list for the past three years. 

“Engage is driven to deliver the best PEO experience to clients while simultaneously growing our company, and Lightyear gives us the opportunity to do both better and faster,” said Jay Starkman, CEO of Engage PEO. “A key factor in our decision was Lightyear’s track record of working with management teams to create stronger companies and add value to all stakeholders.” 

Piper Jaffray & Co. is acting as exclusive financial advisor and Jones Day is acting as legal counsel to Engage. 

About Engage PEO
Engage PEO delivers comprehensive HR solutions to small and mid-sized businesses nationwide, sharpening their competitive advantage. Comprised of the industry’s most respected veteran professional employer organization executives, certified HR professionals and attorneys, Engage PEO provides hands-on, expert HR services and counsel to help clients minimize cost and maximize efficiency for stronger business performance. The company’s superior service offering includes a full range of health and workers’ compensation insurance products, payroll technology and tax administration, risk management services and advanced technology as part of an extensive suite of HR services. Engage PEO was recently awarded the designation of Certified Professional Employer Organization (CPEO) by the Internal Revenue Service (IRS), ensuring greater benefits for small and mid-sized businesses such as tax advantages and financial protections. Engage PEO is also accredited by the Employer Services Assurance Corporation. For more information on Engage PEO visit www.engagepeo.com

About Lightyear Capital LLC
Founded in 2000, Lightyear is a financial services-focused private equity firm based in New York. Through its affiliated private equity funds, Lightyear makes primarily control investments in North America-based, middle-market companies across the financial services spectrum, including financial technology, asset and wealth management, healthcare financial services, insurance and insurance services, payments and processing, and specialty finance. Lightyear brings focus and discipline to its investment process, as well as operating, transaction and strategic management experience, along with significant contacts and resources beyond capital. For more information, please visit www.lycap.com

50 Fastest Growing Women Owned/Led Companies Announced by Capital One and Women Presidents’ Organization

Congrats to Erica Brune of Lever1 and Pam Evette of Quality Business Solutions for making this list! Quite an accomplishment! See the full article below.

12TH Annual Awards Ceremony Recognizing Fast Growth Held in Charlotte

CHARLOTTE, N.C., May 2, 2019 /PRNewswire/ — The Women Presidents’ Organization (WPO), along with Capital One, has announced the 12th annual ranking of the 50 Fastest-Growing Women-Owned/Led Companies. The companies featured on this year’s list include a wide variety of industries, such as technology and finance. Aggregate revenues are $5.9 billion, demonstrating the significant impact of women-led companies on the global economy.

Women Presidents' Organization logo. (PRNewsFoto/Women Presidents' Organization) (PRNewsfoto/Women Presidents' Organization)
Women Presidents’ Organization logo. (PRNewsFoto/Women Presidents’ Organization) (PRNewsfoto/Women Presidents’ Organization)

The top five winners are:

  • Enspire Energy, LLC, a full-service natural gas marketing company, run by Mary Hensley and Julie Hashagen, is the number one winner in this year’s ranking.
  • The second fastest growing women-owned/led company is TKT & Associates, Inc., a business management firm run by Tierra Kavanaugh Wayne, in Louisville, KY.
  • In the number three spot is LYNC Logistics, LLC, which provides truckload, less-than-truckload, refrigerated, and specialized transportation services. Based in Chattanooga, it is run by Cynthia P. Lee, CEO and Founder.
  • The number four spot is Erica Brune’s Lever1, a Kansas City-based Professional Employer Organization (PEO).
  • Ranked number five is SPERO, a portfolio of profitable business enterprises. Based in Washington, D.C., SPERO is run by 26-year-old Jenelle S. Coy.

The number nine winner, Pamela S. Evette of Quality Business Solutions, located in Travelers Rest, SC, is Lieutenant Governor of South Carolina. The number 22 winner, Patti MasseyMYCA Material Handling Solutions, Inc., is based in Cary, NC.

“At Capital One, we are passionate about supporting women business owners and leaders,” said Jenn Flynn, Head of Small Business Bank at Capital One. “The rise in women-owned businesses is an exciting trend to watch. These women are a real force, as reflected in the WPO 50 Fastest winners, and they are inspiring others to achieve great levels of success.”

“I am delighted our rankings show women entrepreneurs are branching out into every sector of business,” said WPO President and Founder Dr. Marsha Firestone. “We are also very encouraged companies of all sizes are represented – some smaller but very successful companies demonstrated significant growth.” 

All eligible companies were ranked according to a sales growth formula, combining percentage and absolute growth. To qualify for the ranking, businesses are required to be privately-held, woman-owned or led and have reached annual revenues of at least $500,000 as of 2013 and every subsequent year. Applicants are not required to be WPO members.

Additional facts:

  • Average number of employees on first day: 9; projected average for 2019: 492
  • Funding sources at company start:
The 2019 50 Fastest-Growing Women-Owned/Led Companies are:
1Enspire Energy, LLCMary Hensley and Julie HashagenChesapeake, VA
2TKT & Associates, Inc.Tierra Kavanaugh WayneLouisville, KY 
3LYNC Logistics, LLCCynthia P LeeChattanooga, TN
4Lever1Erica BruneKansas City, MO
5SPEROJenelle CoyWashington, DC
6Stride ConsultingDebbie MaddenNew York, NY
7Xtreme Solutions IncPhyllis W. NewhouseAtlanta, GA
8Within Interior Design, Inc.Heather R. RobinsonNorfolk, VA
9Quality Business Solutions, Inc.Pamela EvetteTravelers Rest, SC
10Merrimak Capital Company LLCMary KariotisNovato, CA
11Maximum Games, Inc.Christina SeelyeWalnut Creek, CA,
12Pretzel Perfection, LLC dba Perfection SnacksAmy HolykDoylestown, PA
13Technology Group Solutions, LLCLenora PayneLenexa, KS
14Marijuana Business DailyCassandra FarringtonLakewood, CO
15KDM EngineeringKimberly MooreChicago, IL
16EnseoVanessa OgleRichardson, TX
17LifeHealth, LLCMargot Adam LangstaffLittleton
18Quantum HealthKara TrottColumbus, OH
19Innovative Office Solutions LLCJennifer SmithBurnsville, MN
20Twelve, Inc.Katie ConovitzBrooklyn, NY
21GlobalCare Clinical Trials, LLCGail AdinamisBannockburn, IL
22MYCA Material Handling Solutions, Inc.Patti MasseyCary, NC
23KaTom Restaurant Supply, IncPatricia BibleKodak TN
24Artech LLCRanjini PoddarMorristown, NJ
25AEC Group, Inc.Cathy MaryMcKeesport, PA
26Coranet Corp.Margaret MarcucciNew York, NY
27BrightStar CareShelly A. SunGurnee, IL
28AtriumRebecca CenniNew York NY
29SwoonMichelle BakerChicago, IL
30CB Technologies, Inc.Kelly IrelandOrange, CA
31ERKUNT TRACTOR IND.INC.Zeynep ArmaganAnkara, Turkey
32Ampcus Inc.Ann RamakumaranChantilly, VA
33CMT Services, Inc.Annette JohnsonHyattsville, MD
34Blue Chip TalentNicole PawczukBloomfield Hills, MI
35E2 OPTICS LLCKristi Alford-HaarbergEnglewood, CO
36Strategic Security CorpChristie SordiCommack, NY
37Atlas Travel & Technology GroupElaine OsgoodMarlborough, MA
38CJ ChemicalsCatherine LeePerry, MI
39Data Systems Analysts, Inc.Frances R. PierceTrevose, PA
40SocialfixTerry TateossianClinton, NJ
41Stones River ElectricJami HallMadison, TN
42Kaizen Technology Partners LLCDao JensenSan Francisco, CA
43Xclusive StaffingDiane AstleyWestminster, CO
44Koya Leadership PartnersKatie BoutonNewburyport, MA
45Evolution Event Solutions, LLCFalon Veit ScottNashville, TN
46NUGATE GROUP, LLCJamila StanfordSan Jose, CA
47Airosmith DevelopmentMargaret SmithSaratoga Springs, NY
48ShareableeTania YukiNew York, NY
49Etica Group, Inc.Jessica NickloyIndianapolis, IN
50SpaceBound, Inc.Patricia MillerCleveland, OH

About Capital One 
Capital One Financial Corporation is headquartered in McLean, Virginia. Its subsidiaries, Capital One, N.A. and Capital One Bank (USA), N. A., offer a broad spectrum of financial products and services to consumers, small businesses and commercial clients. We apply the same principles of innovation, collaboration and empowerment in our commitment to our communities across the country that we do in our business. We recognize that helping to build strong and healthy communities – good places to work, good places to do business and good places to raise families – benefits us all and we are proud to support this and other community initiatives.

CONTACT:Frank TortoriciMarketing Mavenfrank@marketingmaven.com908-875-8908 MobileMarissa DavisCapital Onemarissa.davis@capitalone.com(484) 620-2247 Mobile

Marijuana Legalization Update: Five Things You Need To Know

See below from our friends at NCCI regarding a very popular topic these days…Cannabis.

Marijuana legalization continues to be a hot topic in 2019. Most states have legalized marijuana in some form, and there is much speculation around federal activity. NCCI is monitoring legislative, judicial, and other developments as this issue evolves. Our latest update addresses the top five questions on the minds of our workers compensation industry stakeholders.

  1. What is the status of marijuana legalization? Marijuana is still illegal at the federal level and remains classified as a Schedule I drug under the federal Controlled Substances Act. However, there is ongoing activity at the federal and state levels to address marijuana legalization and related issues. The current status of state marijuana legalization is shown in the map below:
    • Recreational marijuana is legal in 10 states plus DC
    • Medical marijuana is legal in 33 states plus DC
    • CBD oil/non-psychoactive forms of marijuana are legal in an additional 14 states under certain circumstances
    • Three states currently do not have laws legalizing marijuana in some form, but two of them (Kansas and Nebraska) have pending legislation
  2. What is happening legislatively in 2019? NCCI is tracking marijuana-related legislation in more than 20 states, as well as at the federal level.Federally, legislation to decriminalize marijuana is pending before Congress. Decriminalization at the federal level is viewed as unlikely in the short term. Meanwhile, Congress is also considering measures that allow for state regulation of marijuana without federal interference and provide protections to financial institutions that serve marijuana-related businesses that are legal under state law.Federal legislation providing protections to financial institutions is already advancing. On March 28, the House Financial Services Committee approved H.R. 1595, which provides financial institutions and insurers that provide services for legitimate cannabis-related businesses with a safe harbor from criminal prosecution.Regarding state legislative activity, as of April 1, an additional 15 states are considering legalizing recreational marijuana and 8 are considering legalizing medical marijuana. NCCI is also tracking several state bills addressing the issue of medical marijuana reimbursement in workers compensation.
  3. Are insurers required to reimburse for medical marijuana in workers compensation? One of the emerging workers compensation issues is whether medical marijuana is reimbursable. Insurers are increasingly receiving requests to reimburse for medical marijuana use for workers compensation treatment. Given the friction between state and federal law, states are faced with the challenge of whether to approve medical marijuana treatment for work-related injuries. This issue is being addressed through legislation as well as in the courts. Over the years, states such as Connecticut, Minnesota, New Mexico, and New York have permitted reimbursement for medical marijuana in certain circumstances. New Mexico has even established a maximum reimbursement amount for medical marijuana in its workers compensation fee schedule. Other states, including Florida and North Dakota, have enacted laws prohibiting payment of workers compensation benefits for medical marijuana. Louisiana passed legislation in 2018 which provided that medical marijuana reimbursement is not required for workers compensation purposes.During the 2019 legislative session, several states—including Hawaii, Kansas, Maine, Maryland, New Jersey, New York, and Vermont—have considered or are considering legislation to authorize the reimbursement of medical marijuana in workers compensation.On the other hand, Kentucky and Oklahoma lawmakers proposed legislation similar to the Louisiana law, which does not prohibit reimbursement, but also does not affirmatively require employers and workers compensation insurers to pay for medical marijuana.
  4. Have there been any new rulings from the courts regarding medical marijuana reimbursement? In addition to state legislation, state courts are addressing the issue as to whether medical marijuana is reimbursable in workers compensation. In March 2019, the New Hampshire Supreme Court held that the state’s medical marijuana law does not prohibit reimbursement under workers compensation. However, the court did not rule that the insurer is required to reimburse. The supreme court remanded the case to the compensation appeals board to provide additional legal support on the federal issues involved in the case; specifically, whether federal law would be violated if the insurer is ordered to reimburse for the payment of medical marijuana.In 2018, the Maine Supreme Court ruled in the Bourgoin v. Twin Rivers Paper Co. case that employers are not required to reimburse for marijuana as a workers compensation treatment. The court determined that because marijuana remains illegal under the federal Controlled Substances Act, Maine’s medical marijuana law is preempted and cannot be used as the basis to require reimbursement.The Massachusetts Department of Industrial Accidents and the Vermont Department of Labor have also recently denied reimbursement for medical marijuana treatment for workers compensation claimants.
  5. Have there been any new developments regarding research studies or a test to determine impairment? One outstanding workers compensation issue is whether medical marijuana is a viable alternative to opioids for pain management and getting employees back to work sooner. Since marijuana is still illegal under federal law, research has been limited to date. Another outstanding issue is how to determine “impairment” for marijuana and the impact on workers compensation benefits if an employee is injured on the job and tests positive. There are efforts under way to develop tests similar to breathalyzers and other methods currently available to test blood alcohol levels, which would better help define what could be considered appropriate “impairment” levels. Until those tests are fully developed and implemented, states and state courts are addressing this issue on a case-by-case basis. For example, in November 2018 the Oklahoma state court of appeals ruled in Rose v. Berry Plastics Corp. that the presence of tetrahydrocannabinol (THC) in an employee’s blood after a workplace accident does not automatically mean that the employee should be denied workers compensation benefits due to impairment. There is also pending legislation in Oklahoma (SB 305) which, among other things:
    • Clarifies instances in which an employer may take action against an employee or applicant who tests positive for marijuana
    • Provides that employers will not be required to permit or accommodate the use of medical marijuana on their premises or reimburse a person for costs associated with the use of medical marijuana
    • Authorizes employers to have written policies regarding drug testing and impairment

The legislation has passed the Oklahoma Senate and is awaiting action in the House.NCCI will continue to track these developments.

Stay tuned to ncci.com for updates on marijuana legislation and other hot topics throughout the year.

https://www.ncci.com/Articles/Pages/II_Insights_MarijuanaFocusupdate.aspx

Workers’ Compensation Rate Redundancy

  • 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
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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

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.

Insurers Remain Cautious About Marijuana Insurance Market

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

Big Data was a BIG Deal at NAPEO’s Risk Management Conference

Last week’s Risk Management Conference hosted by our friends at NAPEO was a huge success! For those that weren’t able to attend click here to access the Big Data presentation that was presented by the following individuals:

  • James Benham / JBKnowledge
  • Paul Hughes / Libertate Insurance Services
  • Kristin Meeker / CCMSI
  • Chase Pettus / gradient A.I.

NAPEO’s Risk Management Conference Ready to Invade Nashville on March 6th and 7th!

NAPEO’s annual Risk Management Conference is right around the corner! It’s a must see conference for those interested in risk management and other related areas of focus. Click here to access the agenda. Below are presentation topics:

  • Workers’ Compensation Rate Update
  • Crime Insurance
  • Big Data
  • Cyber Security
  • PEOs and Cannabis
  • Payroll Fraud

Libertate is proud to be a sponsor of this wonderful conference. We hope to see you there. If attending, we would love to buy you a drink and talk about insurance, data and the PEO industry!

Paul – phughes@libertateins.com

David – dburgess@libertateins.com

Sharlie – sreynolds@libertateins.com