AM Best to Add “Innovation Scores” to Carrier Rating Models

In a very intriguing announcement, the “gold standard” of insurance company credit rating organizations, AM Best, has decided that how a carrier does or does not invest in areas of technological innovation will impact their long term financial viability and thus potentially their rating.

“AM Best defines innovation as a multistage process whereby an organization transforms ideas into new or significantly improved products, processes, services or business models that have a measurable positive impact over time and enable the organization to remain relevant and successful. These products, processes, services or business models can be created organically or adopted from external sources.” www.ambest.com

While I think this is a fantastic move, other agent peers not so much. My favorite quote of the article is:

“The Council of Insurance Agents and Brokers took a more dubious view of the innovation scoring proposal, in a blog post titled “AM Best Aims to Quantify the Unquantifiable: Innovation.”

What companies spend on innovation as a percentage of surplus/premiums is a pretty black and white measurement and I would think the ability to make innovation actionable and meaningful can also be quantified. Why would agents not want the carriers to be more advanced?

I have a quote of my own to reference on that front…

“If you want something new, you have to stop doing something old.”

 -Peter F. Drucker

The insurance industry is arguably the most behind on innovation than any other financial sector – let’s hope this change helps to jump-start a movement of investment in the improvement of the client and agent experience through technological innovation!

  • By Elaine Goodman and from our friends at workcompcentral.com

Rating agency AM Best has proposed a new scoring system for assessing carriers’ innovation efforts, an idea that is sparking mixed reactions from the insurance industry.

Mike Fitzgerald

Mike Fitzgerald
(Celent photo)

AM Best announced its draft proposal, “Scoring and Assessing Innovation,” in March. A public comment period ran through mid-May. The agency continues to meet with different groups to discuss the proposal, including a presentation this week at the Farm Bureau Insurance Managers Conference in Jackson Hole, Wyoming.

AM Best said it has been capturing innovation indirectly through the “various building blocks” of its rating process. But now, a more direct focus on innovation may be needed.

“Innovation always has been important for the success of an insurance company, but with the increased pace of change in society, climate and technology, it is becoming increasingly critical to the long-term success of all insurers,” AM Best said in announcing the initiative.

Under the proposal, all companies rated by AM Best would be scored and their innovation assessment would be published. In addition, AM Best would “explicitly consider” whether a company’s innovation efforts are impacting its financial strength.

A proposed scoring system would rate companies on their innovation “inputs” — factors such as whether the company has an innovation strategy, and management’s attitudes toward innovation. AM Best would also assess measurable results, or “outputs,” a company is seeing from innovation.

Although some failure is expected when a company is trying new things, AM Best said the lack of productive results may indicate that innovation has become a financial drain on a company.

AM Best noted that not all innovation involves fancy technology such as blockchain or the “Internet of Things.” Innovation can come from outside sources and doesn’t have to be developed within the company, AM Best said.

Mike Fitzgerald, a senior analyst with information technology consulting firm Celent, called the AM Best proposal a positive step that will help ensure that the insurance industry moves forward.

“It’s a fantastic idea,” Fitzgerald said. “I think they’re right on target.”

One of the first results of the innovation assessment will be that insurance executives are more involved in innovation initiatives at their companies, he predicted.

“Senior leaders at all insurance companies are going to have to be a lot more engaged and conversant than they have been in the past,” Fitzgerald said.

One part of the AM Best proposal that could use more fleshing out, Fitzgerald said, is the definition of innovation.

In its proposal, AM Best defined innovation as “a multistage process whereby an organization transforms ideas into new or significantly improved products, processes, services or business models that have a measurable positive impact over time, and enable the organization to remain relevant and successful.”

Although Fitzgerald said innovation is likely to involve technology, he said there could be some cases where it doesn’t.

The Council of Insurance Agents and Brokers took a more dubious view of the innovation scoring proposal, in a blog post titled “AM Best Aims to Quantify the Unquantifiable: Innovation.”

“Market incentives already exist to push companies to innovate — will establishing an innovation rating system encourage companies to invest in new technologies for the right reasons?” CIAB said.

In addition, CIAB said, the scoring could push companies toward investing in risky companies to show their interest in innovation.

“Investing in immature or unnecessary startups presents an opportunity cost that in turn may harm a company’s overall rating if those investments do not result in any created value,” CIAB said.

Paul Carroll, editor-in-chief of the Insurance Thought Leadership website, called the AM Best announcement great news for the insurance industry.

“With this new focus on innovation, AM Best has done the insurance industry a big favor by not only sounding a warning but also offering the industry focus, structure and direction to avoid the danger of inaction,” Carroll wrote in a blog post.

The assessment will force insurance companies to move beyond merely “checking the boxes” when it comes to innovation, Carroll said. He cited as an example companies that go on innovation tours and then claim to be on top of the latest technology.

Shortly after the AM Best announcement, the strategic consulting arm of Insurance Thought Leadership, ITL Advisory, announced it was offering insurance companies a new innovation assessment service. ITL Advisory said its assessment can help insurers determine whether their innovation programs align with best practices and are likely to produce a return on investment, as well as whether the company is prepared for the AM Best review.

“The release of (the AM Best) draft criteria and procedures will create some urgency among insurers to understand the innovation process, and start or accelerate efforts to implement innovation programs,” Wayne Allen, chief executive officer of Insurance Thought Leadership, said in a statement.

The 72’nd Annual Workers’ Compensation Educational Conference – Orlando

Another year and another convergence of the who’s who in the field of workers’ compensation at the Marriott World Center in Orlando this week.  Known as the largest insurance conference in the country, the Workers’ Compensation Institute brings together “centers of influence” in law, medicine, claims adjusting, underwriting, brokerage, risk-bearing, managed care, regulation, legislation, staffing and of course coemployment.

Dating back over a decade, the Workers’ Compensation Institute and specifically Jim McConnaughhay and Steve Rissman have granted the PEO community a one day educational track.  Shortly thereafter, FAPEO and NAPEO threw their influence and sponsorship behind it.  Special thanks to the WCI, FAPEO and NAPEO for making this a success and bringing positive exposure to the PEO industry.

I am proud to participate on a panel Tuesday morning at 9:00 am with Andy Olwert (Next Level), Deb Hetzer (PEMCO), Phil Herron (Continuum HR) and Robert Barrett (Rissman, Barrett, Hurt, Donahue, McLain & Manganese’s, PA) titled “Accountability in the PEO Industry – Posting Wins for PEO’s and Their Claims Teams”.  More information on this data-driven session can be found on the WCI 360 site here:

http://www.wci360.com/conference/professional-employer-organization-breakout

Hope to see you Thursday morning and look forward to catching up with lots of old friends!

Internal Revenue Service Posts List of PEO Small Business Efficiency Act Participants

Unfortunately for the PEO industry, there have been cases in the past of payroll tax money not making its proper way to the Internal Revenue Service from a PEO, leaving small employers being forced to repay SUTA and FUTA.  A solution to allow PEO’s to be accredited/certified/recognized by the IRS was sought by NAPEO to help the credibility of the industry and ensure proper payments of tax for American business.

As background and straight off the NAPEO website…

www.napeo.org

On December 19, 2014, President Obama signed the Tax Increase Prevention Act of 2014. Included in this legislation was the Small Business Efficiency Act (SBEA), which created a voluntary IRS certification program for professional employer organizations. It was previously approved by the House of Representatives as a provision in the ABLE Act to off-set the costs associated with that proposal, then incorporated into the Tax Increase Prevention Act of 2014 and passed by the Senate.

IRS PEO certification is important because it:

  • Confirms the certified PEO (CPEO) can pay federal employment taxes under its EIN.
  • Protects customers through the CPEO’s sole liability on wages paid to WSEs by CPEO.
  • Provides certainty with respect to when a wage base restart is not necessary for new customers.
  • Confirms the CPEO’s FUTA credit for all SUTA paid by CPEO or customer.
  • Offers clear guidance for the CPEO and the customer on pass-through of tax credits and employment tax exclusions.
  • Gives increased comfort for potential client with use of an IRS-certified PEO.
  • Lends credibility to PEO business model, especially with investor community and federal regulators.

—–

This is a huge win for the industry in its quest for more market share against the traditional deployment of employment related functions and I believe will become a huge competitive advantage for the current and future participants of this PEO certification.

The initial list is below…Kudos to NAPEO and the 30 or so PEO control groups to take the lead on this initiative.  For those looking to certify, Thom Stohler and Farrah Fielder at NAPEO are standing by to help —  PRH

List of CPEOs

Applicant Name

Street Name

Addr Line 2

City

State

Postal/Zip

Country

Effecctive Date

ACCESS HUMAN RESOURCES LLC

28800 Orchard Lake Road

2nd Floor

FARMINGTON

Michigan

48334

United States

1/1/2017

ACCESS MANAGEMENT LLC

28800 Orchard Lake Road

2nd Floor

FARMINGTON

Michigan

48334

United States

1/1/2017

ACCESS RESOURCE SOLUTIONS LLC

28800 Orchard Lake Road

2nd Flr

FARMINGTON

Michigan

48334

United States

1/1/2017

ADP TOTALSOURCE CO XXI INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE CO XXII INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE DE IV INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE FL XI INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE FL XIX INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE FL XVI INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE FL XVII INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE FL XVIII INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE FL XXIX INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE I INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE II INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE III INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE INC

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE MI VI LLC

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE MI VII LLC

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE MI XXX INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE NH XXVIII INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ADP TOTALSOURCE OF CO XXIII INC.

10200 Sunset Drive

MIAMI

Florida

33173

United States

1/1/2017

ALCOTT HR GROUP LLC

71 Executive Blvd

FARMINGDALE

New York

11735-4709

United States

1/1/2017

AVALON HR 2 LLC

100 S Pace Blvd

PENSACOLA

Florida

32502

United States

1/1/2017

AVALON HR 3 LLC

100 S Pace Blvd

PENSACOLA

Florida

32502

United States

1/1/2017

AVALON HR LLC

9685 Soldier Creek Rd

LILLIAN

Alabama

36549

United States

1/1/2017

AVITUS INC.

175 N. 27th Street

Suite 800

BILLINGS

Montana

59101

United States

1/1/2017

AVITUS TWO LLC

175 N. 27th Street

Suite 800

BILLINGS

Montana

59101

United States

1/1/2017

AXCET HR SOLUTIONS

8325 Lenexa Drive

Suite 410

LENEXA

Kansas

66214

United States

1/1/2017

ENGAGE PEO LLC

3001 Executive Drive

Suite 340

CLEARWATER

Florida

33762

United States

1/1/2017

EXTENSIS II INC.

900 Route 9 North

Third Floor

WOODBRIDGE

New Jersey

07095

United States

1/1/2017

EXTENSIS III INC.

900 Route 9 North

Third Floor

WOODBRIDGE

New Jersey

07095

United States

1/1/2017

EXTENSIS INC.

900 Route 9 North

Third Floor

WOODBRIDGE

New Jersey

07095

United States

1/1/2017

EXTENSIS IV INC.

900 Route 9 North

WOODBRIDGE

New Jersey

07095

United States

1/1/2017

EXTENSIS VI LLC

900 Route 9 North

WOODBRIDGE

New Jersey

07095

United States

1/1/2017

EXTENSIS VIII INC.

900 Route 9 North

WOODBRIDGE

New Jersey

07095

United States

1/1/2017

G&A OUTSOURCING VII LLC

17220 Katy Freeway Suite 350

HOUSTON

Texas

77094

United States

1/1/2017

GENESIS HR SOLUTIONS INC.

One Burlington Woods

Suite 203

BURLINGTON

Massachusetts

01803

United States

1/1/2017

HELM HR LLC

201 South Court Street

Suite 700

FLORENCE

Alabama

35630

United States

1/1/2017

INSPERITY PEO SERVICES L.P.

19001 Crescent Springs Drive

KINGWOOD

Texas

77339

United States

1/1/2017

INTANDEM HUMAN RESOURCES LLC

650 S Cherry St.

Suite 1221

DENVER

Colorado

80246

United States

1/1/2017

JUSTWORKS EMPLOYMENT GROUP LLC

151 West 26th Street

12th Floor

NEW YORK

New York

10001

United States

1/1/2017

LBMC EMPLOYMENT PARTNERS LLC

201 Franklin Road

Suite 200

BRENTW OOD

Tennessee

37027

United States

1/1/2017

MBA PAYROLL SERVICES II INC.

9455 Koger Blvd

Suite 200

ST PETERSBURG

Florida

33702

United States

1/1/2017

MBA PAYROLL SERVICES INC.

9455 Koger Blvd

Suite 200

ST PETERSBURG

Florida

33702

United States

1/1/2017

MIDWEST VENTURES LLC

1200 Internationale Pkwy

Suite 200

WOODRIDGE

Illinois

60517

United States

1/1/2017

MIDWESTHR LLC

1200 Internationale Pkwy

Suite 200

WOODRIDGE

Illinois

60517

United States

1/1/2017

MINUTE MEN SELECT INC.

3740 CARNEGIE AVENUE

CLEVELAND

Ohio

44115

United States

1/1/2017

MODERN BUSINESS ASSOCIATES V INC.

9455 Koger Blvd

Suite 200

ST PETERSBURG

Florida

33702

United States

1/1/2017

MODERN PAYROLL SERVICES II INC.

9455 Koger Blvd

Suite 200

ST PETERSBURG

Florida

33702

United States

1/1/2017

MODERN PAYROLL SERVICES III INC.

9455 Koger Blvd

Suite 200

ST PETERSBURG

Florida

33702

United States

1/1/2017

MODERN PAYROLL SERVICES INC.

9455 Koger Blvd

Suite 200

ST PETERSBURG

Florida

33702

United States

1/1/2017

NEXTEP BUSINESS SOLUTIONS IV INC.

1800 N. Interstate Drive

NORMAN

Oklahoma

73072

United States

1/1/2017

NEXTEP BUSINESS SOLUTIONS V INC.

1800 N. Interstate Drive

NORMAN

Oklahoma

73072

United States

1/1/2017

NEXTEP BUSINESS SOLUTIONS VI INC.

1800 N. Interstate Drive

NORMAN

Oklahoma

73072

United States

1/1/2017

NEXTEP BUSINESS SOLUTIONS VII INC.

1800 N. Interstate Drive

NORMAN

Oklahoma

73072

United States

1/1/2017

NEXTEP INC.

1800 N. Interstate Drive

NORMAN

Oklahoma

73072

United States

1/1/2017

OASIS HR SOLUTIONS III INC.

2054 Vista Parkway Suite 300

WEST PALM BEACH

Florida

33411

United States

1/1/2017

PAYCHEX PEO VI LLC

970 Lake Carillon Drive

Suite 400

ST. PETERSBURG

Florida

33716

United States

1/1/2017

PAYCHEX PEO VII LLC

970 Lake Carillon Drive

Suite 400

ST. PETERSBURG

Florida

33716

United States

1/1/2017

PROFESSIONAL EMPLOYER SERVICES II INC.

2400 Wolf Rd. Ste. 100

W ESTCHESTER

Illinois

60154

United States

1/1/2017

PROFESSIONAL EMPLOYER SERVICES INC.

2400 Wolf Rd. Ste. 100

W ESTCHESTER

Illinois

60154

United States

1/1/2017

PROGRESSIVE EMPLOYER MANAGEMENT COMPANY IV LLC

6407 Parkland Drive

SARASOTA

Florida

34243

United States

1/1/2017

PROPEL PEO INC.

669 N. Academy Street

GREENVILLE

South Carolina

29601

United States

1/1/2017

PROPEL PEO OF TEXAS INC.

669 N. Academy St.

GREENVILLE

South Carolina

29601

United States

1/1/2017

RESOURCING EDGE I LLC

1309 Ridge Road

Suite 200

ROCKW ALL

Texas

75087

United States

1/1/2017

S2 HR SOLUTIONS 1A LLC

3001 Executive Drive

Suite 340

CLEARWATER

Florida

33762

United States

1/1/2017

S2 HR SOLUTIONS 1B LLC

3001 Executive Drive

Suite 340

CLEAWATER

Florida

33762

United States

1/1/2017

S2 HR SOLUTIONS 1C LLC

3001 Executive Drive

Suite 340

CLEARWATER

Florida

33762

United States

1/1/2017

S2 HR SOLUTIONS 1D LLC

3001 Executive Drive

Suite 340

CLEARWATER

Florida

33762

United States

1/1/2017

S2 HR SOLUTIONS 2D LLC

3001 Executive Drive

Suite 340

CLEARWATER

Florida

33762

United States

1/1/2017

S2 HR SOLUTIONS GROUP 1 LLC

3001 Executive Drive

Suite 340

CLEARWATER

Florida

33762

United States

1/1/2017

STAFF MANAGEMENT INC.

5919 Spring Creek Road

ROCKFORD

Illinois

61114

United States

1/1/2017

STS ADMINISTRATIVE SERVICES OF FLORIDA INC.

9455 Koger Blvd

Suite 200

ST PETERSBURG

Florida

33702

United States

1/1/2017

STS NATIONAL ADMINISTRATIVE SERVICES INC.

9455 Koger Blvd

Suite 200

ST PETERSBURG

Florida

33702

United States

1/1/2017

STS NATIONAL MANAGEMENT SERVICES INC.

9455 Koger Blvd

Suite 200

ST PETERSBURG

Florida

33702

United States

1/1/2017

STS REGIONAL ADMINISTRATIVE SERVICES INC.

9455 Koger Blvd

Suite 200

ST PETERSBURG

Florida

33702

United States

1/1/2017

SWBC PROFESSIONAL EMPLOYER SERVICES I LLC

30815 US Hwy 281 N

BULVERDE

Texas

78163

United States

1/1/2017

SWBC PROFESSIONAL EMPLOYER SERVICES II LLC

30815 US Hwy 281 N

BULVERDE

Texas

78163

United States

1/1/2017

SWBC PROFESSIONAL EMPLOYER SERVICES III LLC

30815 US Hwy 281 N

BULVERDE

Texas

78163

United States

1/1/2017

SYNDEO OUTSOURCING LLC

3504 N Great Plains Dr Ste 200

WICHITA

Kansas

67230

United States

1/1/2017

TANDEM PROFESSIONAL EMPLOYER SERVICES II INC.

2400 Wolf Rd. Ste. 100

W ESTCHESTER

Illinois

60154

United States

1/1/2017

TANDEM PROFESSIONAL EMPLOYER SERVICES III INC.

2400 Wolf Rd. Ste. 100

W ESTCHESTER

Illinois

60154

United States

1/1/2017

TANDEM PROFESSIONAL EMPLOYER SERVICES INC.

2400 Wolf Rd. Ste. 100

W ESTCHESTER

Illinois

60154

United States

1/1/2017

TANDEM PROFESSIONAL EMPLOYER SERVICES IV INC.

2400 Wolf Rd. Ste. 100

W ESTCHESTER

Illinois

60154

United States

1/1/2017

TANDEM PROFESSIONAL EMPLOYER SERVICES V INC.

2400 Wolf Rd. Ste. 100

W ESTCHESTER

Illinois

60154

United States

1/1/2017

TANDEM PROFESSIONAL EMPLOYER SERVICES VII

2400 Wolf Rd. Ste. 100

W ESTCHESTER

Illinois

60154

United States

1/1/2017

TANDEM PROFESSIONAL EMPLOYER SERVICES VIII INC.

2400 Wolf Rd. Ste. 100

W ESTCHESTER

Illinois

60154

United States

1/1/2017

Last Updated 07/14/2017

California Adopts 16.5% Workers’ Compensation Rate Drop for 7.1

From the Insurance Journal…

http://www.insurancejournal.com/news/west/2017/05/22/451841.htm

California chose to adopt the Workers’ Compensation Insurance Rating Bureau’s (“WCIRB”) recommendation of a -16.5% drop in pure premium rates.  It should be noted that these rates are advisory only and so what to watch next is who adopts the pricing decrease and who does not.  With over 30% of all US workers’ compensation premiums generated out of California, this will provide an intriguing battleground and opportunity for those carriers that buy into WCIRB’s numbers in regard to lower medical loss development, decreasing indemnity claim frequency, and lower than projected loss adjustment expenses.

– Paul R. Hughes

 

2016 Workers’ Compensation Combined Ratio is a 94 per NCCI

It has been a busy month of conventions… NAPEO Legal and Legislative, RIMS and last week the NCCI.  On the ground at the PACE conference in New Orleans, a look back at the NCCI AIS.

The National Council of Compensation Insurance (“NCCI”) Annual Issues Symposium is the preeminent conference for understanding all things workers’ compensation.  Industry experts in the carrier, reinsurance and brokerage communities converge in Orlando every year in May to better understand the meaningful trends in the workers’ compensation line of insurance. The most meaningful number of this year’s event was 94… the lowest combined ratio of any other year since 1990 with the exception of 2006 (93).  It should also be noted that this is a 6 point drop from the 100 of last year and represents one of few years <100.

Based on typical patterns, this is now where capital enters the market… which was illuminated when the NCCI literally sold out of tickets.

With NAPEO’s Legal and Legislative Conference two weeks ago, the NCCI conference last week and PACE in New Orleans this week… it has been a high school reunion of sort – seeing good friends, telling old stories and commiserating on how to make the PEO industry the optimal platform for American business.  Health insurance maybe in the news every day but workers’ compensation is the line of business that PEO’s must have.

The origination of the PEO Compass was to provide an executive summary of all things workers’ compensation and how they impact all things PEO.  The NCCI is a huge driver of this nationwide and sets rates and rules in 37 states.  The document attached is a must read for those like me that are workers’ compensation and data geeks.

https://www.ncci.com/Articles/Documents/II_AIS2017-SOL-Guide.pdf

For those that are not (or would prefer not going through 57 slides), the highlights below:

  • The total P/C industry’s 2016 combined ratio (101%) represents a three-point increase versus that for 2015.
  • Combined ratios increased in all lines of business except workers compensation (slide 4)
  • Premium for the NCCI-serviced Residual Market Pools has remained stable over the last four policy years, at approximately $1.1 billion. (slide 12)
  • Between 2015 and 2016, countrywide private carrier direct written premium grew +2.4% (slide 15)
  • The percentage change in payroll (+4.5%) is approximately equal to the percentage change in the average wage (+2.5%) plus the percentage change in employment (+1.9%).  Employment grew at an above-average rate for the Professional and Business Services; Education and Health Services; Construction; and Leisure and Hospitality sectors.  Employment in the Manufacturing sector was flat, while the All Other sector posted a decrease primarily due to declines in Natural Resources and Mining employment (slide 17)
  • NCCI workers’ compensation filings with effective dates in 2017 averaged –6.7%… California and New York are already seeking approval for rate decreases which are not even part of this data set (slide 18)
  • In 2013, more than 70% of respondents saw an increase in premium at renewal, but by the fourth quarter of 2016, 62% reported seeing a decrease in premium at renewal (slide 23)
  • The workers compensation 2016 calendar year combined ratio for private carriers was 94%. This is the second consecutive year that the industry has posted a six-point underwriting gain. Consecutive combined ratios at this level have not been seen in at least the last 30 years (slide 24)

What this means is that workers’ compensation has become a very sexy line of insurance risk-bearers.  With favorable improvements in operating and investment performance, the median expected rate of return is +20%.  Again, it is therefore no surprise that this years NCCI AIS conference was sold out months prior to the event.

For those that happen to be in New Orleans this week for the annual PACE conference, let’s meet up and strategize in person about the great opportunities ahead for the industry.

– Paul R. Hughes

c: 321.217.7477

e. phughes@libertateins.com

 

 

New York Workers’ Compensation Rates Expected to Fall 4.5%

Mr. Cuomo has committed to a workers’ compensation “business process reengineering” aimed at increased efficiencies in the overall system.  This from the Insurance Journal today.

At the same time, improvements in medical delivery is also part of the budget in areas such as:

  • Expanding the safety net for seriously injured workers, so more are eligible to apply for reconsideration for lifetime benefits when their benefit caps are set to expire.
  • Ensuring injured workers who are out-of-work and not receiving benefits will get a hearing within 45 days.
  • Providing relief for first responders exposed to extraordinary stress in emergency situations.
  • Strengthening the administrative tools available to the Board in its efforts to provide swift and appropriate delivery of benefits to injured workers.

If the recommendation from the New York Compensation Insurance Rating Board is approved (which is likely), the new rates will take effect on 10.1.17.

  • Paul R. Hughes

New York Board Proposes 4.5% Workers’ Compensation Rate Decrease

New York businesses could soon see some slight relief in workers’ compensation premiums, according to an announcement from Gov. Andrew M. Cuomo.

The governor’s office released a statement Monday saying that the New York Compensation Insurance Rating Board, a non-governmental rate service organization, has submitted an overall workers’ compensation rate decrease of approximately 4.5 percent for rates beginning Oct. 1, 2017. If approved, the premium decrease equates to a savings New York employers about $400 million this year in workers’ compensation premiums.

In its rate filing, CIRB attributed the reduction in premium rates to certain cost savings measures passed as part of the 2018 budget and general system savings spearheaded by the New York State Workers’ Compensation Board, according to the governor’s statement.

“The reforms to the Workers’ Compensation system in this year’s budget will help New York businesses cut costs – enabling them to further reinvest, grow and create more jobs across the state,” Cuomo said. “With this rate decrease, New York is providing real savings to businesses helping to make them more competitive while strengthening protections for injured workers at companies across the state.”

The rate submission must still be reviewed and approved by the Department of Financial Services. If approved it would become effective October 1, 2017.

New York Senate Majority Leader John J. Flanagan said workers’ compensation reforms were part of the budget negotiations earlier this year.

Workers’ compensation premium rates are determined on an annual basis and take into account recent claims experience as well as implementation of any new policies and procedures. The 2018 New York Budget specifically addresses cost by applying limits to temporary disability payments prior to a permanency award, while providing an exemption process for the most seriously injured.

“Governor Cuomo and the Legislature have successfully managed to rebalance the workers’ compensation system to provide better protections for injured workers and provide much needed relief to New York’s businesses,” said Kenneth J. Munnelly, chair of the Workers’ Compensation Board.

The budget also includes better protections for injured workers by:

  • Expanding the safety net for seriously injured workers, so more are eligible to apply for reconsideration for lifetime benefits when their benefit caps are set to expire.
  • Ensuring injured workers who are out-of-work and not receiving benefits will get a hearing within 45 days.
  • Providing relief for first responders exposed to extraordinary stress in emergency situations.
  • Strengthening the administrative tools available to the Board in its efforts to provide swift and appropriate delivery of benefits to injured workers.

The budget requires the Workers’ Compensation Board to publicize new permanent impairment guidelines to reflect advances in modern medicine that result in better outcomes. Additionally, to ensure that injured workers receive high quality, cost effective medications, the board will establish a prescription drug formulary.

According to the governor’s office, the reforms build on his continued commitment to improve New York’s workers’ compensation system to more effectively serve the needs of injured workers and employers.

Signed by the Cuomo as part of the 2013-14 budget, the Business Relief Act provided hundreds of millions in savings for New York businesses by fundamentally restructuring the way that workers’ compensation assessments were made.

Cuomo also launched a comprehensive “business process re-engineering” to re-imagine the workers’ compensation system. As part of that effort, the Workers’ Compensation Board is close to launching virtual hearings, which will modernize and virtualize the Board’s present hearing environment and allow injured workers to participate in a hearing at a location that is most convenient for them, even their home, the statement said.

In addition, the Workers’ Compensation Board has developed new processes to ensure benefits are delivered more timely by utilizing alternative means to resolve disputes. This allows the board to preserve hearing time for more complex cases with legal disputes. The board has also generated a dramatic decline in inventory of pending workers’ compensation appeals and the length of time it takes for those appeals to be resolved. The prompt processing of appealed claims aids both workers and employers, by making benefits and treatments available more quickly and lowers litigation costs.

Source: New York Office of the Governor

NCCI Estimates Florida Supreme Court Decisions Create Workers Compensation Unfunded Liability Potentially Exceeding $1 Billion

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NCCI has estimated that the combined total statewide unfunded liability related to the Florida Supreme Court’s decisions in (1) Emma Murray, (2) Castellanos, and (3) Westphal could potentially exceed $1B. This cost will be borne by insurance companies, individual self-insured employers, and employers with deductible policies (due to growth in out-of-pocket costs, or in other words, the amount that the employer agreed to pay on losses up to the deductible threshold).

These court decisions are expected to increase overall system costs in Florida for certain accidents occurring prior to 10/1/2016. The unfunded liability relates to costs that cannot be recouped through revising Florida workers compensation rates. Therefore, the unfunded liability is an additional cost over and above the proposed 19.6% increase in Florida workers compensation rates proposed effective 10/1/2016. If the filing effective date of 10/1/2016 is delayed, the unfunded liability will necessarily grow.

Background

Two recent Florida Supreme Court decisions, Castellanos and Westphal, have retroactively changed Florida’s workers compensation law. Prior to these decisions, the last Florida Supreme Court decision to retroactively change Florida’s workers compensation law was Emma Murray in 2008. Each of the above retroactive changes in the law has resulted in additional workers compensation claims costs for certain claims. The chart below describes the type of claims retroactively impacted by each Florida Supreme Court decision.Screen Shot 2016-08-04 at 5.10.18 PM

Workers compensation ratemaking does not address the added costs associated with these claims because ratemaking is prospective. As an example, the rates approved by the Florida Office of Insurance Regulation in 2014 for use on a Florida policy effective from 1/1/2015 to 12/31/2015 were calculated based on the law in effect during 2014. An injury that occurred on 7/1/2015 is expected to be paid for by the premiums collected on the 1/1/2015 policy—even if the claim remains open for 20 or more years. When there is a retroactive change in the law that results in additional costs, there is no ability to go back and amend the 1/1/2015 Florida workers compensation rates in order to collect additional premium for the 2015 year. Nor is there any other current method for collecting additional premium for that 1/1/2015 policy. As a result, any additional costs incurred must be absorbed by the insurers that wrote those policies, or in the case of individual self-insured employers and employers with deductible policies, by each employer.

On occasion, the Florida Legislature will change the law in response to decisions of the Florida Supreme Court. Any legislative changes to Florida law under this scenario would apply only on a going-forward basis. This occurred subsequent to Emma Murray. After the Emma Murray decision on 10/23/2008, the Florida Legislature enacted a change to the attorney fee law which was effective on 7/1/2009. The retroactive impact of Emma Murray remained however for open or re-opened claims for accidents occurring between 10/1/2003 and 6/30/2009. Similarly, any potential legislative response to Castellanos or Westphal would apply on a going-forward basis and would not address the additional workers compensation costs for claims retroactively impacted.

Retroactive Impact of Castellanos and Westphal Decisions Are Not Part of the Proposed 10/1/2016 Rate Increase

On 6/30/2016, NCCI submitted to the Florida Office of Insurance Regulation (OIR) an amended filing proposing an increase of 19.6% in Florida workers compensation rates effective 10/1/2016. The Castellanos component of this filing (+15%) addresses the expected first-year impact on Florida workers compensation system costs for accidents occurring on or after the proposed filing effective date of 10/1/2016. The decision in Castellanos is expected to increase overall system costs in the state for open or re-opened claims related to accidents occurring between 7/1/2009 (the effective date of the last reform to the attorney fee statute) and 10/1/2016.

The Westphal component of this filing (+2.2%) addresses the impact on Florida workers compensation system costs for accidents occurring on or after the proposed filing effective date of 10/1/2016. The decision is also expected to increase overall system costs in the state for open or re-opened claims related to accidents occurring between 1994 (the effective date of the last reform to temporary benefits) and 10/1/2016.

As noted previously, the Florida Supreme Court’s decision in Emma Murray also retroactively changed the law. That decision increased overall system costs in the state for certain accidents occurring on or after 10/1/2003 and prior 7/1/2009. Many of those claims remain open today.

NCCI has estimated that the combined total statewide (including individual self-insured employers) unfunded liability related to the Florida Supreme Court’s decisions in Emma Murray, Castellanos, and Westphal could potentially exceed $1B. If the filing effective date of 10/1/2016 is delayed, the unfunded liability will grow.

This estimate of the unfunded liability does not consider the following:

 Impacts related to the First District Court of Appeal decision dated 4/20/2016 known as Miles v. City of Edgewater Police Department related to claimant paid attorney fees

 Subsequent year impacts, if any, that NCCI is unable to quantify

An individual insurer or self-insured employer should not draw any conclusions as to its own unfunded liability from NCCI’s estimate of the statewide figure. Each insurer’s/self-insured employer’s unfunded liability will vary based on many factors, including, but not limited to, the number and type of open claims, average claim costs, and claims handling practices.

In order to place this $1B figure in context, note that since the 2003 reform, Florida’s annual statewide direct written premium volume (including individual self-insured employers) has ranged from a low of $2.4B to a high of $5.5B. In 2015, Florida’s premium volume was $3.6B.

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NAPEO’s Annual Risk Management Conference 2016

Risk Management Workshop

March 10-11, 2016
Tampa Airport Marriott

NAPEO’s Risk Management Workshop has evolved into the largest gathering of PEO risk management professionals, carriers, brokers, and agents. Nowhere else will you find the PEO industry’s top risk managers, key insurance executives, regulatory experts, and policy makers gathered for such an in depth look at PEOs and workers’ compensation. Attendees will hear from risk management experts, get tips from leaders in the industry, and be able to take home ideas you can employ back in the office immediately to improve your risk management practices. The workshop will feature hands-on breakout sessions allowing participants to focus your attention on specific topics.

Who Should Attend?

  • PEO risk managers
  • PEO owners
  • PEO senior managers with risk management responsibility
  • Insurance and risk management service providers to the PEO industry

Schedule of Events:

Thursday, March 10, 2016
9:00am – 12:00pm PEO Primer (separate registration and fee to attend)
9:00am – 12:00pm PEO University: Workers’ Compensation Risk Management (separate registration and fee to attend)
12:00pm – 1:00pm Registration
1:00pm – 2:00pm Opening Keynote Session with Rich Fairfax, former Deputy Assistant Secretary for the Occupational Safety and Health Administration
2:00pm – 3:00 pm OSHA Staffing Firm Initiative
 3:00pm – 4:00pm NAPEO & NAIC
4:00pm – 4:30pm Networking Break
4:30pm-5:30pm Insurance Carrier Panel: A Candid Question & Answer Session with the Insurance Carriers Serving the PEO Industry
5:30pm – 6:30pm Networking Reception
Friday, March 11, 2016
7:30am – 8:30am Registration
7:30am – 8:00am Continental Breakfast
8:00am – 9:00am Keynote Session with Mona Carter of NCCI
 9:00am – 10:00am    Utilizing Data To Develop Efficiencies In Workers’ Compensation
10:00am – 10:30am Networking Break
10:30am – 12:00pm Claims Handling
12:00pm – 1:30pm Networking Lunch & NAPEO Legal & Legislative Update
1:30pm – 2:30pm ​EPLI

 

The 2016 Risk Management Workshop was put together in conjunction with the Certification Institute.

CI manages the PEO industry’s WC Risk Management Certification program. Certification provides independent professional verification that a PEO’s risk management program is meeting industry best practices to reduce work-related accidents and health exposures and control WC insurance losses. Certification gives PEO client business owners assurance their service provider has the capability to deliver important risk management results and also provides WC insurance companies with ongoing assurance that a PEO is consistently and effectively implementing industry best practices.

Pricing
Full Workshop Registration – includes all workshop educational sessions, networking break, and networking reception on Thursday, networking breakfast and break and lunch on Friday, and conference proceedings notebook
Members: $595          Non-Members: $925

Reception Registration – includes access to Thursday’s networking reception only
Members: $50           Non-Members: $60

Affordable Hotel Room Rates
NAPEO’s block of rooms at the Tampa Airport Marriott is almost sold out. If you still need a room, please contact Allie Hansen at ahansen@napeo.org ​as soon as possible. Alternatively, if you want to cancel your existing reservation, please contact Allie instead of cancelling through the hotel directly.

Closest Airport
The Tampa Airport Marriott is located inside the Tampa International Airport, just minutes away from all terminals.

NAPEO thanks the following generous sponsors of the 2016 Risk Management Workshop:

Event Sponsors:

AEUH-GroupLogo-10 Libertate Logo
netwise logo_300dpi_4x2 PrismHR_Logo_RGB
 Risk Transfer 2015 Slavic401k–Final Logo-Primary
 

USRiskIncLogoNEW 2012smaller

 

Wi-Fi Sponsor:

Libertate Logo

Networking Reception:

eflex tasc divisionsmaller  KMH_logo2 (3) 

 


Registration Desk:

Fisher_Phillips New Logo 2012_295CMYK (640x272)

 


Lunch:

Barrow Group logo netwise logo_300dpi_4x2

 

Continental Breakfast & Networking Breaks:

AmTrust Underwriters stonehenge logo

 

PEO Primer:

PrismHR_Logo_RGB

 

Lanyards:

Slavic401k–Final Logo-Primary

 

Conference Pens:

BKS Beyond Insight Vertical

 

Questions about the the event?
Contact Robin Schlesinger, (703) 739-8176.​

Questions about room reservations?
Contact Allie Hansen, (703) 739-8174.

Interested in exhibits or sponsorships?
Please contact Nancy Benoudiz, (703) 739-8169.