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PEOs See Boom in Mergers

It seems almost unthinkable that only a few years ago, many observers around the state left the professional employment organization (PEO) industry for dead. Caught in the workers' compensation

By Michael H. Adams | Updated on August 31, 2007

It seems almost unthinkable that only a few years ago, many observers around the state left the professional employment organization (PEO) industry for dead. Caught in the workers’ compensation insurance crisis of the late 1990s and early 2000s, the industry looked on as one carrier after another withdrew from the market, leaving leasing companies stranded and threatening numerous employers with ruin due to a lack of workers’ compensation coverage. At one point, there were only three carriers that actively marketed workers’ compensation coverage to PEOs. Then there was the fallout from the flurry of mergers and acquisitions, where in the pursuit of marketshare, PEOs engaged in cutting underwriting corners and making other questionable business decisions that eventually jeopardized their financial future.

Case in point: Between 2001 and 2004, the Division of Workers’ Compensation issued 11 stop-work orders to PEOs for failing to have proper workers’ compensation coverage, which resulted in $3.2 million in fines. The Division of Insurance Fraud also investigated eight cases involving PEOs, which represented an estimated $18 million in avoided premium. Due to these negative financial trends, a number of PEOs were finally forced into bankruptcy or pushed out of the market.

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