"""Staffing Insurance; What you need to know--- Now!"
Article 2 in a Series
"Workers' Compensation : The State of the Market for Staffing Firms"
I can't tell you how often I encounter staffing firms who are stuck in less than optimal workers' compensation situations; mainly in State Funds or Assigned Risk Pools, or in a mediocre program when a better option may be available to them. The state of the workers' compensation market for staffing firms, while in flux right now, is still wide open. Rates are comparatively low with several national carriers willing to compete for clean, well managed staffing firms. Even staffing firms with a less than perfect loss history can sometimes find that they have a couple of options available to them at renewal.
However, there are already signs that the market may “harden” in the not too distant future, and the time to prepare for that next phase is right now. What is a “HARD MARKET?” It's an insurance term used to describe periods of time, usually lasting several years, when insurance coverage may be harder to find, rates are much higher, and there are fewer carriers to choose from. During hard markets, some carriers will discontinue writing certain lines of insurance or will completely pull out of certain markets. Others will renew existing clients, but won't accept any new accounts.
For example, during California 's last hard market in the 1990s and early 2000s, most staffing firms had only one choice available to them; the State Compensation Insurance Fund. Only the very best managed staffing firms still had options available to them.
The science of projecting when the next hard market will arrive is inexact, at best; however, many experts are beginning to talk about a hard market in late 2010 or 2011. Two signs that may indicate that a hard market is coming are; an improving economy and rate increases. In California alone, rates have increased for two straight years and are projected to climb anywhere from 10% - 22% on January 1, 2010. While some states are still lowering rates, there are others that have begun to raise them.
What does a hard market mean for you? How can you best prepare for it? A hard markets means that you may not have a choice of carrier at renewal. It could mean that your current carrier won't offer a renewal if they consider your loss experience unacceptable or trending upward. Underwriters will also take a hard look at the class codes you use and may not renew you based on too much payroll in higher hazard groups. And a hard market almost definitely means higher workers' compensation costs.
You definitely can't stop the hard market from coming, but you can begin to prepare for it now. What can you and should you do about it?
- Find the right strategic partners. You may only have one or two renewals left between now and when the hard market hits. You should treat these renewals as an opportunity to find the best workers' compensation carrier program you can find. How do you find the”best” possible market for you? You need to work with a broker who specializes in servicing the staffing industry; who knows the national marketplace, and has relationships with the major carriers for the staffing industry.
Manage your claims. You need to take a hard look at your claims activity and see if it is steady; trending upward; or trending downward. When the hard markets hits, the better carriers will only write the cleanest staffing firms. If you have a broker who has expertise in the area of claims analysis, it would be advisable to use your broker's expertise to help you get a handle on your claims and to correspond regularly with you to monitor your loss ratio. - Watch your Experience Modifier. Is it on the rise? Is it 125 or 150 or higher? That spells trouble and needs to be addressed aggressively right now. It can take years to reverse a rising Experience Modifier. Reversing a rising or high Experience Modifier takes concerted effort and may require hard decisions about which clients you should or should not service. Does your broker advise you regarding the direction and monitoring of your Experience Modifier? It's important to use all of the tools you can muster to manage this number. An Experience Modifier of 150 can mean that your workers' compensation costs are 50% higher than your competition, making it hard to compete and be profitable.
- Don't be vulnerable. Some carriers come into the market when it's soft and go out of the market when it hardens. They are the new, hot idea, and they flame out as soon as losses begin to rise. Beware of these carriers that don't have a long-term commitment to staffing. You can be non-renewed by one of them when the market is at its toughest, and find it very difficult to find coverage at a reasonable premium.
- Consider a Captive. The time to consider a captive program is before the market hardens. Captives always make sense, but they make the most sense when workers' compensation is expensive and hard to find. Captives may provide the risk taker with a better long term financial approach to workers' compensation. They survive both in hard markets and soft markets because they offer risk management benefits, and manage claims aggressively.
In a nutshell, while the workers' compensation climate is good, forward thinking business owners should be preparing for tougher times ahead by establishing relationships with the best brokers and carriers available for long term financial success.
At CTK North American Insurance Services/INSURICA, we have a proven long-term record of success in helping clients find the right long-term carrier solution. We also have a workers' compensation Risk Management department that helps our clients manage claims and control their Experience Modifier. In short, we'll help you orchestrate long term financial success and peace of mind knowing that you'll have a committed partner in a quality workers' compensation program with a long term track record of success.
Questions? Please feel free to email me at Richs@ctkins.com , and I'll make sure to get you an answer.
1240 North Lakeview Avenue, #240, Anaheim, California 92807 P 714.779.2000 F 714.779.4129