August 24 2011 0comment

Why Employee Leasing and PEOs Are Dropping Risky Clients

Workers’ Compensation Markets Reported to be Shrinking

P & C insurance agents and employee leasing brokers will tell you that rates for workers compensation coverage have been the lowest on record for almost a decade. Work comp rates remain low in almost every state and occupation across the country. Much of the decrease in premiums was the result of a robust economy, spearheaded by a housing boom that led to record employment in the construction industry.

Insurers and employee leasing companies who specialize in construction and the building trades received billions in premiums. Powerful business associations lobbied state representatives to eliminate abuses to the system. Regulations passed to address tort reform were starting to take effect by reducing the frequency of WC claims filings and payment amounts.

While lower workers comp premiums is great news for business owners in general, and particularly for companies who employ workers in high risk jobs. This is not the case for workers compensation insurers, employee leasing companies and professional employer organizations that cover the risk when employees suffer an occupational injury.

In 2010, NCCI President and CEO Steve Klingel was quoted as saying “Today, the workers compensation industry faces a number of difficulties that will confront market stakeholders in the weeks and months to come.” Those difficulties include poor underwriting results, declining premiums, healthcare reform uncertainty, and now, an uptick in claim frequency added NNCI Chief Actuary Dennis Mealy.

Workers’ compensation insurance companies acknowledge that their costs continue to rise as premiums decline, according to a recent report released by the National Academy of Social Insurance. The drastic drop-off in workers’ being covered reflects the heavy impact the recession had on employment in the construction industry. According to the report, construction industry employment suffered a 19% drop making it the “hardest hit industry” between 2008 and 2009. Total cash benefits to injured workers and medical payments for their health care were $58.3 billion in 2009 compared to $58.1 billion in 2008, an increase of 0.4%.

What does this mean for business owners in construction, manufacturing, property maintenance, trucking and warehousing, and green companies involved in solar, water and wind energy production? Count on your operating costs for labor and personnel management to increase. Investments in risk avoidance, control, and risk management systems will pay dividends almost immediately. Implementing policies and procedures that enhance healthy and safe worksites create an environment which promotes greater job satisfaction, production, and employee and contractor retention.

If your current employee leasing company, professional employer organization, or workers’ compensation carrier is increasing rates, has given you notice of termination, or service is non existent, all is not lost. There are still many options available in the marketplace for blue collar and high risk occupations. Like many things in life, you just have to know where to look.