Recently, regulators have moved to increase the options for carriers to insure PEOs. The Florida Office of Insurance Regulation has signed off on a new policy form submitted by the National Council on Compensation Insurance, which will allow carriers to write PEOs under what is known as a multiple coordinated policy. Under the approved MCP, a carrier can provide a PEO a policy for its direct employers while issuing an endorsement for each client company that would be the named insured. The PEO could still oversee the policies by collecting premiums, but under the MCPs, the carrier will have access to each client company's payroll, loss experience, when the policy was issued, renewed, non-renewed, or canceled. Currently, most of that information is not reported to NCCI or regulators with that level of detail.

NCCI–NAPEO: Two Perspectives

NCCI State Executive Director Lori Lovgren said the origins of the NCCI rule stretched back to before 2003 when the workers' comp crisis led to large carriers such as CNA, Ins. Co., to stop writing PEOs. She said that some carriers thought that the use of MCPs would bring about more accountability and allow them to better manage the risk. “Employers who hire employees under their leasing contract are supposed to report that hire to their PEO immediately,” Lovgren said. “Often that is not done and from a carrier's perspective, they never know who they are covering on any given day.”

Be that as it may, Lovgren said that the new policy option is not targeted at the PEO industry. She pointed out that there are MCPs already in existence in the state, including the ones issued by the Florida Workers' Compensation Joint Underwriting Association. She said the filing just seeks to add some structure so that carriers who want to go that route will have the rules to do so. It will still be up to carriers and PEOs whether master policies or MCPS are used. “These forms only add rules to allow MCPs; they don't touch master policies. It will be up to the market to determine what policies are used,” she said.

That is not to say that NCCI doesn't have its critics.

National Association of PEOs Executive Vice President Milan Yager levied charges that NCCI deceptively manipulated the rate filing process to push the new policy form through by not holding any public hearings and limiting the amount of feedback before the policy form was approved. Yager also stated that the form is unnecessary, given the health of Florida's PEO market. “NCCI said this would lead to an expansion in the voluntary market,” he said. “I'm not aware of any carrier licensed in Florida that is in need of this.”

What Yager and other critics fear is that NCCI's new form is just the first step in trying to make MCPs mandatory in the state. They also object to Florida' s forms for being more expansive than those used in other states such as Arizona where separate policies are issued, but the PEO remains the named insured. Lovgren maintains that is an unfair comparison since a state like Arizona has few PEOs.

What is at the center of this debate is the development of experience modification factors. There has long been a concern that employers with high experience mods often enter into leasing agreements to “hide” behind the PEOs lower mod. For their part, PEOs say they have plenty of reasons to engage in risk management and monitor the loss experience of client companies. That's not good enough, says Lovgren.

“The approach PEOs are asking for is the minority approach,” she said. “The great majority of states–30 altogether–use the client-policy approach. Out of those 30 states, only six use the PEO as the named insured. The rest all use the named insured as the client, without mention of the PEO.

“The policy should carry the name of the PEO client and not the PEO because it will aid in separating and tracking data for each of the individual clients, so that when clients come and go you can still have the experience rating for the individuals. The only way to do that easily is if the policies are in the name of the client. Secondly, there are proof-of-coverage concerns. The state wants to know who the clients are. Florida has the greatest number of PEOs in the nation.”

Yager said that the PEOs are not necessarily opposed to what the MCPs are designed to track. However, he maintains that the problem is not about insurance as much is it is about technology. Therefore, he said, there is no need place the kind of restrictions on the market that have been proposed by NCCI. “Large carriers and large PEOs can already track this information,” he said.

A Thriving Market

While it will take time to evaluate what allowing carriers to write MCPs will have on the market, one fact is for sure and that is the PEO market is thriving. Enjoying the some 40 percent reduction in workers' compensation rates since the 2003 reforms, more and more employers are seeking PEO services. The Tampa-based Alphastaff Group, Inc., is one leasing company that is experiencing rapid growth and currently has over 40,000 worksite employer employees. Owner Bob Beck said that today's market is the best he has seen in his entire career. He attributes much of that to the advances in technology. “The old rule use to be that for every 100 employees you needed one human resource person,” he said. “That rule is being shattered.”

For example, he said, in the past paychecks had to be generated for each worker, a process that was time consuming. Now, most people are being paid through electronic direct deposits. “With today's technology we can pull up benefit information and payroll information in a matter of minutes,” he said. “We can also pull up all kinds of reports and different reports based on the client's needs.”