Will master Cyber policies be the next EPLI product for PEOs?

With two carriers now offering master PEO cyber programs, the question here is PEO’s be able to sell these as part of their overall package?

A recent 2017 RIMS survey has shown that 83 percent of organizations have a standalone cyber insurance policy (up 3 percent from 2016) and only 14 percent are utilizing the cyber coverage offered in their other insurance policies.

One reason for this statistic could be that Risk Managers want specific endorsements and add-on coverages that apply directly to their industry or are a result of a problem they’ve faced in the past.  This has been a crucial part of individual cyber policies over the past few years as the carriers try to keep up with the quickly evolving cyber space.

With the above in mind, it may be difficult for PEO’s to make this as part of their basic package as EPLI has become over the past decade.

I would like to note the PEO cyber program has one crucial endorsement, Social Engineering, that can be added on for an individual client company.  This has to be individually underwritten for each client company adding another layer for the PEO sales rep to cross-sell.

If you work in the PEO industry, please comment below with your thoughts of PEO’s offering cyber coverage to client companies. For more statistics from the RIMS survey please visit: http://www.insurancejournal.com/news/national/2017/08/25/462357.htm


-David Campbell

Risk Consultant at Libertate Insurance

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:


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

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.


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



Florida Workers’ Compensation Rates Get No Legislative Relief

There will be a certain increase in Florida workers’ compensation rates this coming year as the Florida legislature failed to pass anything to address the Castellanos and Westphal cases that lead to a 14.5% rate increase on 12.1.16.  The 14.5% was at the low end of the range that NCCI used in recommending n increase.

  •  Paul R. Hughes

Florida Fails to Pass Workers’ Compensation Reform

Florida businesses shouldn’t expect relief for workers’ compensation rates, this year at least. The Florida Legislature failed to pass legislation this session addressing 2016 decisions by the Florida Supreme Court that sent the state’s workers’ comp system into disarray and led to a rate increase of 14.5 percent.

After much back and forth between the House and Senate over their respective bills, it came down to attorney fees, which the industry says are to blame for the majority of the rate increase.

Lawmakers sought to reform the state’s workers’ comp system through two bills – House Bill 7085 and Senate Bill 1582 – in response to decisions by the Florida Supreme Court that found aspects of the Florida Workers’ Comp Act unconstitutional.

[Lawmakers also failed to pass other closely-watched insurance reforms addressing insurance claims (assignment of benefits) abuse. Read more on the failed AOB legislation.]

Debate over the Senate and House bill went on throughout the final legislative day on Friday with the House, in an attempt to lure the Senate to its side, passing an amendment capping attorney fees at $180 an hour on approval by a judge of compensation claims. The Senate version of the bill capped attorney fees at $250 an hour versus the House’s previous $150 an hour cap. On Friday, the Senate voted not to lower the cap in its bill to $200 an hour, but the House still tried later to compromise with the $180 cap.

Another key difference in the Senate version was a provision moving Florida to a loss-cost system. Rep. Danny Burgess, who sponsored the House bill, told House members “the jury’s still out” on whether a loss cost system leads to a premium reduction, based on data from states that had switched to this model.

Burgess said he hoped the Senate would agree to the attorney fee compromise so lawmakers could get “something across the finish line.”

“The bill, as it stands today is on the end of the rope,” he told House members Friday. “[We are] trying to provide substantial reform to address rising rates from recent court decisions…We have to solve this problem before us. Every small business in the state of Florida is watching us now.”

The Florida Supreme Court’s decisions that caused the upheaval came in two cases – Castellanos v. Next Door Company and Westphal v. City of St. Petersburg. The biggest cost driver behind the 14.5 percent rate increase, according to the National Council on Compensation Insurance (NCCI), was Castellanos. That decision found the state’s mandatory attorneys’ fee schedule for workers’ compensation cases eliminated the right of a claimant to get a reasonable attorney’s fee — a “critical feature” of the workers’ compensation law. The impact of the Castellanos decision equaled 10.1 percent of the 14.5 rate increase, while Westphal accounted for 2.2 percent.

Burgess said the House version could offer up to a 5 percent reduction in rates and the Senate’s version would offer only about a 1 percent reduction.

The insurance industry supported the House version, agreeing that attorney fees are the main cost driver behind rate increases. The Property Casualty Insurers Association of America (PCI) said the bill would have addressed “decisions by the Florida Supreme Court rulings that could cause workers compensation rates to increase by 14.5 percent in the state, costing Florida job creators more than $1.5 billion.”

But ultimately, the two branches couldn’t reach an agreement before time ran out for lawmakers on Friday night.

Florida businesses now have the rate increase to contend with and the possibility of additional rate increases next year. An actuary from NCCI told the Florida House at a hearing last month that it is reasonable to expect that there would be continued pressure on rates without legislative reform.

The Florida Chamber of Commerce called lawmakers’ failure to enact reform a “failed fix to Florida’s broken workers’ comp system” and said it was a missed opportunity by lawmakers to make Florida more competitive.

California Workers’ Compensation Rates About to Drop in July

Last Thursday, the Workers’ Compensation Insurance Rating Bureau of California (“WCIRB”) testified before the California Department of Insurance that a 16.5% rate reduction was appropriate for the businesses of California effective 7/1/17.  California is a state where rates do not follow anniversary rating dates (“ARD’s) and therefore the impact of this reduction will be immediate for those that shop.

“WCIRB Executive Vice President and Chief Actuary Dave Bellusci and with President and CEO Bill Mudge presented the actuarial basis for the WCIRB’s average proposed July 1 advisory pure premium rate of $2.02, which is 16.5 percent lower than the corresponding industry average filed pure premium rate of $2.42 as of Jan. 1 2017 and 7.8 percent less than the insurance commissioner’s approved average Jan. 1 advisory pure premium rate of $2.19.”


A fertile market for aggressive carriers.

The California Department still has to approve, but that is anticipated in the next 30 days with the effective date of the proposed reduction less than 60 days from today.

While this is a sharp reduction, California still has and will have the highest workers’ compensation rates in the country by far and the State represents approximately 1/3 ‘rd of all workers’ compensation insurance premiums countrywide.  A fertile market for aggressive carriers.  For more info on national State rates and how they compare before credits/dividends and deductibles, review the following link…


-Paul R. Hughes

Libertate Creates Claimant-Driven Pharmacy Cost Management Model (PCMM) for PEO Large Group Medical and Workers’ Compensation that Guarantees Minimum Savings of Up to 15%


ORLANDO, September 26, 2016 / PRNewswire / — In an effort to vigilantly drive the occupational and non-occupational medical spends of our clients downward, we are proud to announce an exclusive partnership with Pharma Strategies to distribute and white label their product to the Professional Employer Organization (“PEO”) industry.  Pharma Strategies is a progressive pharmaceutical management company that has created heavily discounted prescription managed care networks for both workers’ compensation and health insurance.  This claimant-driven model aligns by state for workers’ compensation and utilizes the statutes in effect that allow direction of medical care.  On the major medical front, the Pharma Strategies platform provides incentives to the employee to go to in-network facilities by fully or partially-funding the employee prescription co-pay with the savings derived from the program.  In essence, go to the right pharmacy and the savings is at minimum 15% less than traditional major medical or workers’ compensation fee schedule.  It should also be noted that 99% of the drugs prescribed are eligible for the program.

According to Libertate CEO Paul Hughes, “the prescription drug increase in the workers’ compensation system was +11% overall just last year, and controlled substances such as opioids were up +16% just in the 2014 year.[1]  According to our friends at Milliman, prescription drug costs spiked significantly (on major medical), growing by 13.6% from 2014 to 2015.[2]  Furthermore, the pharma spend as a percentage of overall spend Prescription drug costs now comprise “15.9% of total healthcare spending for a family of four, up from 13.2% in 2001.”[3]

The PCMM is claimant-focused and not triggered by a specific line of insurance as pharmaceutical costs are equally impactful to major medical health insurance and workers’ compensation.  Mr. Hughes added, “Needless to say, the ability to save on the pharmaceutical spends of our clients is paramount in controlling their cost of both occupational and non-occupational health care.  Daily news events such as the recent +500% increase in the cost of the lifesaving allergic treatment EpiPen has illuminated the need to help our clients hedge against the drug makers in order to contain the overall health insurance spend.”

For more information, contact James Hughes at 813.335.1588 / jhughes@libertateins.com

[1] “Workers Compensation and Prescription Drugs:  2016 Update”, National Council of Compensation Insurance (“NCCI”), May 5, 2016.

[2] Milliman Research Report, 2015 Milliman Medical Index “Will the typical American family of four be driving a “Cadillac plan” by 2018?”

[3] Ibid

Small businesses turning to PEOs for benefits, HR

An excellent article out of Benefits Pro on PEO that came out the last day of NAPEO… Trying to catch up after Austin!

“…which found that between 14 percent and 16 percent of those small businesses are reaching out to PEOs that provide payroll, benefits, regulatory compliance assistance and other HR services, rather than dealing with HR and benefits issues themselves.”

The statistics cited for the article provided by our friends at NAPEO in their fourth white paper that empirically backs up the value of the PEO model in growing your business, retaining your employees and offering a better employment experience to the American worker.

“…last year’s report figures indicating that PEOs generated between $136 and $156 billion in gross revenues, provided services to between 2.7 and 3.4 million workers, and offered HR, benefits and compliance assistance to between 156,000 and 180,000 small- to mid-size businesses.”

Wow, means ADP who payrolls 1 in 7  American workers now payrolls almost 1 in 5 coemployed workers.

As evidenced by the highly attended annual conference in Austin, with many newcomers in attendance, there is another surge of momentum going into the all-important 1/1 selling season where anywhere from 30-50% of new business for a growth PEO is attained.

The industry becomes more and more compelling as time goes by.  Really nice to see.

It was great to see and meet new faces, but always epic to see old friends of many years. Thanks for your friendship, love and loyalty.

NAPEO is in our fair town of Orlando next year… see you there!


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


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.


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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