Labor shifts driving new challenges for the PEO sector

Emerging risks have implications for workers' compensation insurance

Labor shifts driving new challenges for the PEO sector

Workers Comp

By Gia Snape

This article was produced in partnership with Amwins Group.

Gia Snape of Insurance Business America sat down with Brian Halstead, vice president, Amwins Specialty Casualty Solutions, to delve into the risks and challenges professional employer organizations (PEOs) face today and how Amwins is making the underwriting process easier for these enterprises.

Significant shifts in the labor market catalyzed by the COVID-19 pandemic are reshaping the risk landscape for professional employer organizations (PEOs).

The sector must re-evaluate their strategies to navigate the challenges ahead, one expert noted, as risks stemming from regulatory changes, different labor demands, and workplace transformations bear on the workers’ compensation market.

Brian Halstead (pictured), vice president, Amwins Specialty Casualty Solutions (ASCS), said they are monitoring critical trends in the PEO sector. He said the pandemic drove regulatory changes as individual states took varying stances on workers.

“Some states shut down completely, and others took varied approaches to furloughed workers,” Halstead said. 

Work-from-home employees represented a notable transformation in the labor market. The shift to remote work, likely tipped by technologies that became ubiquitous during the lockdown phases, appears to be a change that is here to stay.

“We were monitoring what the states were going to do, making sure that we were ahead of it and giving good advice to PEO customers and retail brokers [because] state laws were rapidly changing in real time,” said Halstead.

What are the emerging risks facing PEOs?

PEOs play a pivotal role in today’s workforce landscape, offering comprehensive HR solutions to businesses, including payroll administration, employee benefits management, and compliance assistance.

In the US, approximately 500 PEOs manage four million worksite employees, with the top 10 PEOs insuring 60% of the market.

As PEOs often handle workers’ compensation insurance for their client companies, assuming the risk of workplace injuries and illnesses, they must incorporate effective risk management strategies, including workplace safety programs and claims management protocols, to mitigate the frequency and severity of workers’ compensation claims.

This has become more complex as labor trends persisted post-pandemic, according to Halstead. One significant trend is the shift to temporary staffing arrangements fueled by the growth of the warehousing and logistics segment.

“We started to notice an immediate and then continuous shift from hotel and retail hospitality risks to more temporary staffing, warehousing, wholesale goods, storage, and delivery types of jobs,” Halstead said.

Temporary staffing arrangements pose challenges because there can be a lot of employee movement between staffing firms and PEOs, which can complicate how risk is monitored for an individual client over a policy term.

“We take great care to make sure that we understand the job’s duties, class codes and employee movement within all of our individual client companies to effectively manage risk,” said Halstead.

How is Amwins helping PEOs get the insurance coverage they need?

ASCS prides itself on improving data gathering, customer service, and swift underwriting decisions.

In the PEO space, efficiency, speed and expertise are critical, according to Halstead. He explained: “A PEO is required to sell a small business client a new way of doing business involving multiple products rather than just zeroing in on one.

“They need to show their efficiency and understanding of each product as a part of this sale. As a result, underwriting time on the workers’ compensation line is limited.”

ASCS’ web-based underwriting portal allows PEOs to share underwriting information, connecting the PEO customer directly with decision-makers and slashing submission turnaround time. ASCS strives to underwrite new businesses within eight to 24 hours of receipt of a full submission.

“Right now, we have a soft workers’ compensation market, so there’s a lot of availability outside of the PEO model. It’s more challenging than ever for that sales process to take place because the pricing isn’t always going to be better,” said Halstead.

“From that perspective, we understand that although we’re not going to be the cheapest product, part of what we bring to the PEO transaction is efficiency in decision-making and experienced underwriters who review the PEOs’ submissions on a day-to-day basis.

“The other thing we’ve been working on is reducing keystrokes on the PEO side. We have developed an API that will take the information relevant to the underwriting processes and feed it directly into our underwriting portal so there are no duplicate entries. We get information flowing from one system to another.”

Despite the challenges, Halstead is optimistic about the workers’ compensation market and encouraged PEO operators to continue providing value-added services to small businesses.

“Just stay the course,” he said. “They’re doing such good things by keeping up with regulatory changes and helping small businesses remain compliant. They provide 401k and benefits, which small businesses might not be able to provide on their own.

“It’s important to disperse those benefits to as many employees as possible. If they continue to do that, the workers’ compensation rates will eventually normalize, and they’ll grow more in that space, just as a side effect of being a good actor and contributing so much to small businesses.”

Learn more about Amwins Specialty Casualty Solutions’ PEO program here.

Related Stories

Keep up with the latest news and events

Join our mailing list, it’s free!