PEO RISK MANAGEMENT

ADVISOR November 2010

Features

Surviving the Soft Insurance Market

David E. Carothers, CSP ARM

I recently returned from the annual NAPEO meeting in San Antonio where part of the focus was on “preparing for the hard insurance market.” It occurred to me that given the prolonged soft insurance market, a more appropriate topic might be “surviving the soft insurance market.”

A prolonged soft workers compensation market may present its own set of issues for PEOs. Let’s not forget that the PEO industry is still out of favor with most major “A” rated insurance carriers. Even in a soft market, where carriers are aggressively seeking new ways to generate revenue, they are not clamoring to underwrite PEO risk. PEOs cannot afford to lose focus on risk management fundamentals during this market cycle.

Distractions

There are a variety of issues that are currently competing for a PEO executive’s attention. Examples include SUTA, health care reform, reduced client employee count due to the current economy, and client attrition due to the economy. These issues may result in less PEO revenue, in‐creased pressure to reduce PEO operating expenses, and downward pressure on administration fees. As a result, PEOs may be required to “do more with less.” … Continue reading...

PEO Risk Management – From Good to Great

David E. Carothers, CSP ARM

Through my experience as a Director of Risk Management for a 25,000 employee PEO, a consultant to numerous PEO’s of various sizes, and an agent to my own PEO clients, I’ve had the opportunity to see a lot of diverse business operations in my industry. I’ve no‐ticed a link or continuum in the approach that PEO’s have to their business operations. The approach many of these businesses take toward the Risk Management of their cli‐ents (everything from selection, underwriting and policy administration to loss control, claims management, and metrics analysis) has been an indicator for long‐term growth and sustainability. I call this moving from good to great through risk management, and I’ll outline these five maturity stages with the observations I’ve made over my years in the industry.

Stage 1

Uncertainty – This is the first stage for any PEO (or most businesses for that matter). It’s categorized by confusion toward the structure of a Risk Management program, no com‐mitment to build a structured risk platform, and uncertainty about the Workers Compen‐sation (WC) performance. Companies in this stage are usually heavily reliant on the in‐surance company for administrative tasks and typically do no statistical reporting or analysis. They will usually have a Guaranteed Cost WC policy (with any “B” carrier), and are very reactive to crises.

...Continue reading...

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Ask the Advisor... Recently, we were asked by a PEO owner what de‐

ductible level they should retain on their WC pro‐

gram, and the answer bears repeating in this forum

also…

The answer?

Like most things, “it depends.”

Setting a WC deductible level is a function of several

other considerations, and once you have a handle on

these, the cost/benefit analysis of a deductible vs

guaranteed cost or a retro should be enlightening.

So, consider these questions first.

• How much are you willing/able to collateralize?

• What’s more important, cash flow or stop loss?

• Do you need an aggregate?

• How much flexibility do want/need in underwrit‐

ing new clients?

• Are there jurisdiction limitations?

• Can the carrier produce all required options?

If you have a question you’d like answered, email the editor at:

RiskAdvisor@praxiom‐rm.com.

RISK MANAGEMENT PEO ADVISOR

© 2010 Prax iom R i s k Management L LC

P rax iom R i s k Management i s a Cer t i f i ed R i s k Management and Sa f e t y P ro fes s iona l f i rm . 11/10

Measuring PEO Performance Our Measuring PEO Performance section is dedicated to those

PEOs that manage their Workers Compensation program through a

Large Deductible or captive arrangement, and utilize positive re‐

sults as a profit center. Each month we will highlight different

performance metrics that should be used in measuring WC per‐

formance.

Lag Time— Lag time is the time between when an accident occurs

and when it is reported to the insurance carrier. Lag Time reports

should show the mean, median, and reporting “buckets” over a

given period of time (usually monthly and YTD). The critical

“buckets” to measure are claims filed within the following periods:

• 0—3 Days

• 4—10 Days

• 11+ Days

Best practice dictates that claims should be filed at a rate of 80%, 10% and 10% in each bucket , respectively.

Around the Web Looking for collaboration, peer groups and specific industry

expertise? Make sure you’ve created a profile on LinkedIn

and join some of the following groups to participate in dis‐

cussions and meet new contacts.

The Professionals of the PEO Industry (1,200+ members)

PEO Members’ Network (800+ members)

Linked: HR (330,000+ members)

Society for Human Resource Management (44,000+ members)

Work Comp Analysis Group (6,600+ members)

Risk and Insurance Management Society (4,600 members)

Workers Compensation Highlights We’ll often highlight other publications and articles that have

added value for the PEO Industry, Risk Management practices, and

Workers Compensation insurance.

If you would like to submit an article for our Highlights section,

email it to RiskAdvisor@praxiom‐rm.com.

This month’s online article highlight is :

Workers' Compensation ‐ Deductible Plans by John Keller, CRM ARM CIC

AAI

Here’s an example of a good, informative article that outlines all

types of WC Deductible Plans. Learn the basics of medical vs in‐

demnity, mandatory vs optional deductible states, net vs gross

reporting options, and of course features of small, medium, and

large deductible policies.

The article also defines various financial security and administra‐

tive considerations for Large Deductible programs.

To read the full article follow this link.

The PEO WC risk management certifi‐

cation program provides independ‐

ent professional verification that a

PEO's risk management program is meeting proven insurance in‐

dustry risk management best practices to reduce work‐related

accidents and health exposures and control WC insurance losses.

Certification gives PEO client business owners assurance their ser‐

vice provider has the capability to deliver important risk manage‐

ment results. Certification also provides WC insurance companies

with ongoing assurance that a PEO is in fact implementing industry

best practices in a consistent and effective man‐

ner. Any PEO is eligible to apply for certification.

The program was developed through the coopera‐

tive efforts of WC insurance companies and PEO

industry risk managers and insurance brokers with

the support of the National Association of Professional Employer

Organizations (NAPEO) and the Employer Services Assurance Cor‐

poration (ESAC).

Over the following months we will feature a different best practice

certification requirement outlined by the Certification Institute.

For more information: www.certificationinstitute.org

Up Next… Benchmarking! Ever wonder how your PEO stacks up to others

when it comes to Workers Comp performance metrics? We’ll

cover places to get data and what metrics to use for comparison

© 2010 Prax iom R i s k Management L LC

P rax iom R i s k Management i s a Cer t i f i ed R i s k Management and Sa f e t y P ro fes s iona l f i rm . 11/10

RISK MANAGEMENT PEO ADVISOR

The PEO RM Advisor is a monthly e‐newsletter designed to keep PEO execu‐tives and Risk Management professionals informed of relevant topics in the area of PEO risk management. Sharing information and best practice through e‐newsletters is one of the many ways we can help support your organiza‐tion's risk management efforts. With PEO Risk Management professionals averaging 20 years of experience and encompassing a broad range of industry expertise, Praxiom Risk Management is committed to providing a wide range of resources to help PEOs mitigate risk and grow their Workers Compensation profit center. If you would like to contribute industry specific content or articles for publica‐tion in the areas below, you may submit them to the Editor at RiskAdvisor@praxiom‐rm.com. Authors will receive full credit including dis‐play of their company logo. • Loss Control • Claims Management • Performance Metrics • RM Information Systems • Policy Administration • Carrier Relationships • Industry Certifications