You have read all of the claims that employee leasing and professional employer organizations can reduce your workers compensation costs by 10% or 20%. If your company has developed a high experience mod rate as a result of a large “shock” claim, or claims that may be questionable, it is possible to receive rate reductions of over 25% from employee leasing companies that are competing for your business. Have you ever wondered how this is possible? How do PEOs do it?
The Rule of Large Numbers
All employee leasing companies carry workers compensation coverage just as any small business is required to do (except Texas). However, because they are “pooling the risk” of hundreds of companies and thousands of employees, they have the ability to “self insure” the risk up to a certain amount, the deductible. Some PEOs purchase workers compensation policies that pay only after the first $250,000 of a claim, others are responsible for the first $500,00.
Skin In The Game
What does this mean for the small business owner who is with a PEO or employee leasing company? Because PEOs really have “skin in the game” when your employees submit a claim. Since any claims that are paid come from reserves that would otherwise be profits of the PEO, it is much more likely that claims will be vigorously investigated and contested than in the standard “small group” insurance markets.
Some employee leasing companies have more flexibility than others. They can offer small employers unique WC programs containing a claims “cost sharing” arrangement that can further reduce your rates and improve cash flow. Your company assumes more of the risk, but shares in the rewards of maintaining a safety conscience and healthy workplace. Workers compensation programs like this and others, are not available to small and midsized companies because of insufficient premiums. Entrepreneurs and business owners who take advantage of the benefit’s of using a PEO now have the ability to compete with, and beat, a larger company when bidding for that “prize” contract.
Caveat Emptor – Let The Buyer Beware
You’ve learned how most large employee leasing companies and PEOs essentially “self -insure” their workers compensation risk. It is equally important to understand that the ratings of the insurance carrier hardly matter because they will only be responsible for expenses that exceed the plan deductible. Since only the most traumatic claims with extensive medical bills and long term disability will be covered, it much more important to know the financial soundness of the employee leasing company or professional employer organization.
Below is a press release from Gevity, a leading professional employer based in Bradenton, FL.
Gevity Announces 2009 Workers’ Compensation Insurance Renewal
BRADENTON, Fla., Dec. 30, 2008 (GLOBE NEWSWIRE) — Gevity (Nasdaq:GVHR), a leading professional employer organization (PEO) that provides HR services to businesses nationwide, today announced that the Company has renewed its 2009 workers’ compensation insurance agreement with member companies of American International Group (AIG) Commercial Insurance.
Consistent with 2008, Gevity will maintain a $1 million per occurrence deductible and will make monthly payments to AIG for program costs and estimated future claims costs in the form of loss collateral funds, which will be approximately $17 million lower in 2009.Garry J. Welsh, Chief Financial Officer, commented that “We are very pleased with the terms and conditions of our renewal for 2009. Moreover, we are encouraged that our effective risk management practices and continuing favorable trends in claims costs have resulted in lower loss collateral funding requirements from AIG.”