Workers' Compensation Capacity for Professional Employer Organizations (PEO)

Workers’ Compensation for PEO's

Workers’ Compensation has long been a foundational pillar in the product offering of the PEO model.  Not all carriers are up to the task of offering this line of coverage to a PEO, however, mostly due to the actuaries and legislative complexities and rules that are different by State.  In no State, statute insurance regulations and actuarial rules (NCCI, WCIRB, etc.) actually integrate.  While there are added levels of complexity for carriers to administer and service PEO clients, especially with regard to master policies, there are many reasons our carrier partners have dedicated themselves to this space.  PEO workers’ compensation programs consistently enjoy lower loss ratios and shorter claims development trends that non-PEO monoline comp.  Most PEOs are sophisticated risk management and underwriting organizations with a commanding understanding of how to manage and implement a profitable workers’ compensation program.  Typically, PEOs offer robust loss control and prevention guidance to their client companies; assisting small business with attaining much safer work environments than they would otherwise be able to achieve.  They also employ internal claims management staff who are dedicated to ensuring their injured workers are treated thoroughly and expeditiously, providing the best possible outcome for all parties.  For these reasons, carriers who decide to entertain PEOs as clients are rewarded with reliable, profitable, long-term carrier/client relationships.

Recent movements

This space continues to evolve.  The last 12-18 months has borne witness to many marketplace adjustments as each carrier strives to find their ideal niche within the space.  Key Risk Insurance Company (a WR Berkley Company) is a powerful new addition to this elite club.  Having been working in the comp space for nearly 35 years, they entered the PEO arena just this year, bringing with them an impressively diversified portfolio with over $2 billion in financial prowess and an A+ (Superior) AM Best rating.

Current players

A workers’ compensation program can be structured in a few different ways, depending on the needs, client makeup and financial positioning of the PEO.  For this reason, it is very important that any given PEO has the right carrier partner at their side.  Typically, these programs can be broken up into two main categories, Guaranteed Cost and Loss Sensitive.  A Guaranteed Cost program can offer a PEO a clear and understood total liability.  Pricing is based on 100% coverage of all approved exposures and rates are understood from the onset of the policy through policy expiration.  Guaranteed Cost programs, however, can have more restrictive underwriting and jurisdictional limitations than a Loss Sensitive program.  There are many different ways to structure a Loss Sensitive program.  In general, these programs are splitting the total anticipated claims costs between the PEO and the carrier; this cost is an unknown, however our predictive pricing models have come a long way in nailing down actual program outcomes.  Benefits to this model include broader underwriting guidelines and more competitive pricing.  These programs can tie a PEO's assets up for an extended period of time, however, as collateral is held by the carrier until all claims for a given policy term have fully matured, which can take years.  

Impacts of COVID-19 on Workers’ Compensation Market Appetite

The advent of COVID-19 has brought about major changes to the marketplace for all workers’ compensation carriers, not just PEO partners.  Many carriers have issued a moratorium on covering any healthcare exposures.  Others are now adding jurisdictional considerations to these risks, with exclusions applying specifically in presumptive states.  Some carriers have added additional underwriting requirements for industries with residential delivery exposures, such as requiring a deductible to cover smaller frequency issues such as dog bites.  Nearly all carriers have added additional pandemic screening questions to their underwriting requirements to include supplemental applications, especially for front line industries such as restaurants, nursing homes, home health and retail.  This is likely a change which will endure long after this current pandemic passes. 

These market adjustments aside, PEO carriers continue to remain engaged and enthusiastic about their PEO clients.  That being said, PEOs should look closely at their composition of clients and take care to place high risk or high exposure entities outside of their master policies as makes sense in an effort to protect their experience modification and loss sensitive positions.

Call to Action

Every PEO carrier is as different in their approach to thriving in this industry as is every PEO.  How do you know your PEO workers’ compensation program is placed with the best carrier partner to cater to your needs and methods of operations?  Thankfully, this industry has been graced with the benefit of the lifelong dedication of some really brilliant minds to help answer that question.  My mentor, Paul Hughes, for example, has successfully created 7 workers’ compensation insurance programs specific to PEO over the past 19 years.  Under his guidance, these programs have rendered nearly $2 billion in workers’ comp placements for PEOs to date, with no signs of slowing down. 

If you would like to better understand all market and program offerings available to your PEO, we would love to help.

Paul Hughes	321.217.7477	phughes@libertateins.com
Sharlie Reynolds	305.495.5173	sreynolds@libertateins.com
David Burgess	321.436.8214	dburgess@libertateins.com

Join the Conversation on Linkedin   |   About PEO Compass

The PEO Compass is a friendly convergence of professionals and friends in the PEO industry sharing insights, ideas and intelligence to make us all better.

All writers specialize in Professional Employer Organization (PEO) business services such as Workers Compensation, Mergers & Acquisitions, Data Management, Employment Practices Liability (EPLI), Cyber Liability Insurance, Health Insurance, Occupational Accident Insurance, Business Insurance, Client Company, Casualty Insurance, Disability Insurance and more.

To contact a PEO expert, please visit Libertate Insurance Services, LLC and RiskMD.