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

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.

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.”

New York Workers’ Compensation Rates to Drop 11.7%

For the third year in a row, rtes will drop in New York this year.  This adjustment was recently approved and will take effect on 10.1.18.  More from our friends at the Insurance Journal…

Regulators Approve 11.7% Rate Reduction for Third Cut in Three Years

The New York Department of Financial Services has approved an overall loss-cost rate decrease of 11.7%, the third straight year that the department has fully endorsed a recommended rate cut.

The New York Compensation Insurance Rating Board recommended the latest reduction in May, and the DFS approved it last week. It takes effect Oct. 1.

The recommended change, following a 4.5% reduction a year ago, was based on the latest statistical data reported by the rating board’s member carriers and reflects the application of generally accepted actuarial principles and methodologies, the board said in May.

Insurance and employer groups have said the reductions are largely the result of legislation over the last two years that was designed to cut benefits expenses for employers. Workers’ advocates said the cuts are due more to the fact that the number of claims have dropped significantly nationwide, more workers are considered independent contractors, and workers may have difficulties navigating New York’s complex comp system.

The 11.7% reduction also comes a month after the state Board of Workers’ Compensation announced a plan to raise medical fees for the first time in years — as much as 23% for physicians. Without that, the recommended rate reduction would have been even greater, the rate filing memorandum suggested.

Loss-of-use impairment guidelines, passed by the 2017 Legislature, accounted for almost a third of the proposed rate reduction, the filing said. Under previous guidelines, some injuries could be “stacked” to provide higher impairment ratings.

New Rules for California Large Deductible Programs

In a move aimed to curb carrier insolvencies in the State of California, there is a proposed rule up for discussion in August to change the carriers able to offer these types of programs as well as the way they are administered by those less then an AM Best straight “A” rating.  Specifically…

The draft rules would require that carriers writing large-deductible policies maintain a minimum credit rating of “A” with A.M. Best Co., a rating of “A” or “A” with Standard and Poor’s, a rating of “A1” or “A2” with Moody’s Investment Services, or a Fitch Ratings Inc. rating of “A” or “A.”

The other oddity is that they think carriers do not already collateralize large deductible programs…

“Carriers that do not meet both the credit rating and capital requirements would be required to collateralize the amount they expect an insured to pay as reimbursement for claim costs. Carriers could satisfy the security requirements by ensuring that an employer sets aside money for the exclusive purpose of collateralizing the large-deductible policy.

That happens every day?

I find this rule shortsighted as it is not the rating of the carrier that is as important as the way the carriers manage these programs.  Institutionalizing minimum financial ratings for large deductibles in my opinion is just a “cya” for regulators, hurts the open market and limits this product to the “big boys”.  The regulators  need to pay more attention to the process, the carriers and filings that govern them and they would continue in a business-friendly atmosphere and not suffer the hits to the guaranty fund.

Finance Department Projects Millions in Savings From Large-Deductible Rules

Soon-to-be-proposed rules that would increase capital and credit requirements for carriers writing large-deductible workers’ compensation policies in California could prevent insolvencies and save tens of millions of dollars a year, according to the Department of Finance.

The Department of Insurance plans to start the formal rule-making process Friday by opening up a public comment period on proposed regulations intended to ensure that insurers writing policies with deductibles of $100,000 or more are able to handle the risk of a covered employer becoming insolvent or failing to reimburse the carrier for claim costs, according to an agency official who spoke on the condition that he not be identified.

The department plans to hold a public hearing on the proposed rules in August.

Although officials were not ready Friday to speak about the rules publicly, the department submitted draft rules to the Finance Department. That is required when state agencies estimate that the impact of a regulatory proposal may exceed $50 million in costs.

The draft rules would require that carriers writing large-deductible policies maintain a minimum credit rating of “A” with A.M. Best Co., a rating of “A” or “A” with Standard and Poor’s, a rating of “A1” or “A2” with Moody’s Investment Services, or a Fitch Ratings Inc. rating of “A” or “A.”

Additionally, the rules would require carriers to maintain a sum of paid-in-capital — the amount of money invested in a company used to represent earnings from selling equity — of at least $500 million.

Carriers could also satisfy the requirement by being part of a holding company group that maintains a qualifying credit rating and has sufficient equity.

Carriers that do not meet both the credit rating and capital requirements would be required to collateralize the amount they expect an insured to pay as reimbursement for claim costs. Carriers could satisfy the security requirements by ensuring that an employer sets aside money for the exclusive purpose of collateralizing the large-deductible policy.

Irena Asmundson, chief economist for the Department of Finance, said in a May 21 letter to the Insurance Department that the proposed rules are estimated to increase costs to employers by about $20 million per year. However, the rules are expected to prevent one insurer insolvency every four years, and fewer insolvencies are expected to save about $42 million a year.

Asmundson said the projections were based on the department’s representations in a standardized regulatory impact assessment submitted in April.

An impact assessment summary, signed by Deputy Insurance Commissioner Geoffrey Margolis, says four insurance carriers have become insolvent over the last 15 years “largely because of their involvement with high-deductible workers’ compensation insurance policies.”

Nationally, the four companies had an estimated $624 million in combined incurred losses, $360 million of which arose from the Golden State and were passed on to the California Insurance Guarantee Association.

Margolis said mitigating the risk of insurer insolvencies would shield CIGA from incurring liability for some claims and reduce assessments the guaranty association charges to carriers.

The Department of Insurance has reviewed data for all work comp carriers in California and determined only nine that are writing large-deductible policies would fall short of the proposed credit risk requirements, according to the impact assessment.

The full impact assessment says the nine insurers could pursue mergers or acquisitions, start writing different lines of insurance or phase out large-deductible policies to raise capital to meet the $500 million threshold. But the “most reasonable plan of action” would be for the nine carriers, who are not identified by name in the assessment, to collateralize their deductible receivables.

The carriers have an aggregate $200 million in deductible premium for work comp policies in California. The Insurance Department estimates that the total amount that would need to be collateralized to protect against the risk of potential unpaid future deductibles is about $800 million.

“By requiring that employers obtain additional collateral that is set aside specifically for paying workers’ compensation deductibles, an insurer may protect its obligations without significantly alienating its client employers who might otherwise have to alter their business operations,” the assessment says.

Margolis said during a telephone interview Friday that he wouldn’t discuss specific provisions until regulatory language is proposed at the start of formal rule-making process. Speaking generally about the pending rules, he said, “Insurance Commissioner (Dave) Jones’ goal is to provide reasonable, tailored guides for insurers writing high deductible policies and reduce the risk of insolvency associated with them.”

It’s not clear how carriers view the proposal.

Jeremy Merz, western region vice president of state affairs for the American Insurance Association, said he had not seen the copy of the draft rules posted to the Department of Finance website and could not comment on them.

Rules on the Finance Department’s website are different from an earlier draft that the Insurance Department released before holding a stakeholder meeting to discuss the proposal in March.

Mark Sektnan, vice president of state government relations for Property Casualty Insurers Association of America, was not available for comment on Friday.

 

Is Your Co-Employed Policy Being Evidenced Properly on your Acord 25 Certificate of Liability Insurance (COI)?

PEO COI 101

A Professional Employer Organization (PEO) can secure workers’ compensation coverage for their client companies a number of different ways.  The structure and naming conventions used on each policy are often set by the state in which coverage is afforded.  The NCCI classes these policy types with an Policy Type Code of 1-8.  The attributes of each policy type dictates how coverage for that policy should be evidenced on an Acord 25 Certificate of Liability Insurance (COI).  Not surprisingly, however, many agencies servicing PEO clients, who have limited knowledge of the complex and varying PEO policy structures used to properly insure co-employed employees, often evidence coverage improperly on COIs.

Below is a brief tutorial outlining the 5 most common PEO policy types to help you make sure your COIs are being generated properly.

Common PEO Policy Types:

  1. Master Policy
    1. 1st Named insured is PEO
    2. Policy includes the applicable blanket Alternate Employer Endorsement(s) as required by each state, extending coverage to the client companies of the PEO
    3. Co-employment exists
    4. NCCI Policy Type 8
  2. Multiple Coordinated Policy (MCP)
    1. Naming convention is established by the State(s) where coverage is provided and typically includes both the PEO and Client Company as the 1st named insured
      1. i.e. “PEO Name L/C/F Client Name”
      2. i.e. “PEO Name for workers leased to Client Name”
    2. No alternate employer endorsement is needed as both the PEO and the Client are named as insureds on the policy
    3. Co-employment exists
    4. NCCI Policy Type 4
  3. Client Direct Purchase
    1. 1st Named insured is the Client Company
    2. Policy includes an alternate employer endorsement naming the PEO
    3. Co-employment exists; coverage is also extended to non-leased employees
    4. NCCI Policy Type Code 7
  4. Mini-Master Policy
    1. 1st Named insured is PEO
    2. Policy includes an alternate employer endorsement naming only one client company and its affiliated entities
    3. Co-employment exists
    4. NCCI Policy Type Code 5
  5. Alternate Services Offering (ASO)
    1. 1st Named insured is the Client Company
    2. Policy does not include an alternate employer endorsement and the PEO is not named on the policy
    3. NO co-employment exists
    4. NCCI Policy Type Code 1

 

Proper COI Structure by PEO Policy Type:

Policy Type Insured Section of COI Description of Operations (DOO) section of COI Notes
Master Name of PEO as listed on the Policy Dec Page Client Company being evidenced and effective date when coverage was extended to that Client Company is stated here DOO should include a disclaimer stating coverage is extended to leased employees except in monopolistic states and any other coverage details pertinent to evidenced policy
MCP Name of PEO and Client Company as listed on the Policy Dec Page Client Company being evidenced and effective date when coverage was extended to that Client Company is stated here DOO should include a disclaimer stating coverage is extended to leased employees except in monopolistic states and any other coverage details pertinent to evidenced policy
Client Direct Name of Client Company as listed on the Policy Dec Page PEO is listed as alternate employer DOO should include a disclaimer stating coverage is extended to leased and non-leased employees except in monopolistic states and any other coverage details pertinent to evidenced policy
Mini-Master Name of PEO as listed on the Policy Dec Page Client Company being evidenced and effective date when coverage was extended to that Client Company is stated here DOO should include a disclaimer stating coverage is extended to leased employees except in monopolistic states and any other coverage details pertinent to evidenced policy
ASO Name of Client Company as listed on the Policy Dec Page Nothing specific to co-employment is needed Nothing specific to co-employment is needed

Speak to an experienced PEO agent to learn more.

 

Engage PEO Named 2018 Fast 50 Honoree by the South Florida Business Journal

(MENAFN Editorial) Fort Lauderdale, FL, USA — Engage PEO, a professional employer organization providing HR outsourcing solutions to small and mid-sized businesses across the U.S., was recently honored as one of South Florida Business Journal’s 2018 Fast 50, recognizing the region’s 50 fastest-growing private companies. The official award ceremony and celebration will take place on Thursday, August 16 in Miami.

Companies recognized with this honor have demonstrated significant growth in the past three years. The Fast 50 is a compilation of two Top 25 lists: one for companies with more than $25 million in annual revenue, and one for companies with less than $25 million in annual revenue.

“Joining the ranks of the South Florida Business Journal’s Fast 50 is a clear indication of our unparalleled industry growth and expertise, which translates to strong client relationships and sustained business growth,” said Jay Starkman, CEO of Engage PEO. “We are proud to be listed amongst the fastest growing businesses in South Florida, and will continue to provide personalized human resource and compliance solutions so our clients can then focus on what truly matters: thriving.”

Engage was also named one of the fastest-growing private companies in the U.S. on Inc. magazine’s Inc. 5000 list in 2016 and 2017; over the course of the last four years, no PEO has grown faster. Additionally, Engage recently received another distinction from the Internal Revenue Service that recognizes the company as one of the first professional employer organizations in the U.S. to earn “Certified Professional Employer Organization” status. This new designation ensures greater benefits for small and mid-sized businesses, such as tax advantages and financial protections.

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. In 2016 and 2017, Engage PEO was named to Inc. magazine’s list of the 5000 fastest growing companies. For more information on Engage PEO visit http://www.engagepeo.com.

The IRS does not endorse any particular certified professional employer organization. For more information on certified professional employer organizations go to http://www.IRS.gov.

Contact Information

 

  • Name: Sloane FistelCompany: rbb Communications for Engage PEO
  • Telephone: 305-249-1171

Website: 

Greetings from the NCCI Annual Issues Symposium (AIS)

The National Council this morning gave its annual update on the state of the workers’ compensation line.  As always, Chief Actuary Kathy Antonello did an awesome job of updating the most senior workers’ comp professionals across the globe on all of the relevant economic performance indicators that help us to understand this line of insurance.

The full report can be found off the NCCI website…

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

…as well as other conference highlights.  Some key points to me from the report:

  • The expected combined ratio for this year is the lowest in almost half a century at an 89.  This is 5 points lower then last year’s 94.  This indicates an operating margin of 11 points on average.
  • The investment income gain went from 10.4% to 12% this year, effectively providing an overall return to workers’ compensation insurers of 23%
  • The overall market volume dropped from $45.6b to $45b in premiums, mostly due to rate drops countrywide.
  • The top five class codes (hardest to place) in the residual market are:
    • Carpentry 5645
    • Roofing 5551
    • Local Trucking 7228
    • Painting 5474
    • Long Haul Trucking 7229

I’d expect a lot of capital support for the line due to these results.

Always a great event and wonderful to catch up with so many friends –