Guaranteed cost program versus self-insured group

[Rob Comeau]

Guaranteed cost program versus self-insured group

There are two types of most commonly used insurance programs in the market: The guaranteed cost program and the self-insured group. The following are the benefits and pitfalls to both and below that is an illustration of how the BBSI model encompasses the best of both worlds.

Guaranteed Cost Program

• The guaranteed cost program or standard market insurance quote is the most commonly used insurance product for workers' comp. The benefits of the guaranteed cost program lye within the name. A guaranteed cost program means that you have a set amount of premium to pay regardless of current year losses. Example ($100K in premium with $150K in losses still equates to $100K in premium for the current year).
• Pitfall to this program is that based on the above example the client's future investment goes up as a result of an inflating ex-mod in the future.
• Pitfall to the program is the average deposit is 10% to 25% (though in many cases this deposit will be applied to the premium)
• Pitfall to the program is the only ROI is coverage. If you look at premium as investment capital as opposed to a line item expense then your only return on investment is coverage. If you have no claims then your investment is wasted annually and you have no tangible ROI.

Self-Insured Group

• The Self-Insured Group (a.k.a - group pooled risk, captive) is more common among larger employers or like industry groupings of companies. The benefit to this program is that you can leverage your cost by pooling your risk. In many cases you will also have the ability to get money back in some type of dividend program and should have some type of loss control assistance as well.
• Pitfalls to this program are that your deposit is normally much more substantial than the guaranteed cost market. The group also has the ability (and normally will exercise this right) to keep your deposit for up to 10 years to guard against future loss costs.
• Pitfall to this program, you are only as good as everyone in the group. Unlike the guaranteed cost program if your group or your company itself performs poorly with losses then you will have to re-anty deposit money to cover the collective losses.
• Pitfall to this program is that these types of insurance pools have a life expectancy. Generally underwriting guidelines loosen to accommodate more group members thus driving up losses and the collective cost.

The BBSI Program

• The BBSI program has the benefits of both the guaranteed cost program and the Self-Insured program without the pitfalls (providing your company qualifies for our company).
• BBSI's annual cost operates like a guaranteed cost program in the fact that you have a set mark-up on an annual basis regardless of your losses for that year.
• BBSI does not have a deposit pitfall providing you can substantiate 2 1/2 times your payroll cycle in a liquid format.
• BBSI also has the perks of a Self-Insured Group without the coinciding liabilities. With the BBSI program you have the ability to receive up to 1/3 of your premium annually in a safety incentive rebate (minus the cost of claims).
• BBSI is not a collectively pooled risk. This means that you are individually rated based solely on your loss ratio with a partner who has a vested interest to keep your costs down because we make more money.
• Looking at your premium as investment capital instead of a line item expense brings BBSI to the forefront. You receive a tangible ROI from BBSI on your premium investment in the form of HR Consulting, Safety & Risk Management, Payroll Processing and Aggressive Claims Management. If you don't utilize your investment (i.e. have claims) then not only do you get our suite of consultative services but also 1/3 of your investment back annually.

When evaluating your insurance options for your company and comparing what viable avenues are in today's market, BBSI would seem to me the obvious choice. Keep in mind that you still need to qualify for us by demonstrating a vested interest in safe practices and verification of substantial financial liquidity. In a volatile employer market like California, BBSI is the top choice to combat rising workers' comp costs and increasing volatility in employment regulations.

Rob Comeau I Director of Business Development I BBSI
Office: 949.255.5322 I Cell: 949.510.1126 I Fax: 949.255.5332
Rob.Comeau@bbsihq.com

[Big Dog]

In other words, you're a PEO, and you're looking primarily for Rule IV employers (those with an experience rating).

[Rob Comeau]

We are a Self-Insured PEO, though not to be associated with some of the BS PEO's out there. Our target market is medium risk blue collar virticles such as: construction, mfg, wholesale trade, trasportation and some AG. Our normal clients have a rating though we have written accounts without depending on the situation (start up, comming from a PEO or Self-Insured Group, etc.).

The nice part about this program is that your clients are individually rated and therefore controll their own cost destiny with a partner (BBSI) that has a vested interest to keep their cost down as we are more profitable. With everything that is going on in California currently, now is the best time to get a good company into this program.

Let me know if you have any other questions,

Rob

[Big Dog]

Interesting...a self-insured PEO. How would a potential "client" verify that you are financially viable? i.e. is your firm rated by S&P, or other third party documentation?

[WorkComp&Sense]

Well how about that, a Peo with that has their own Self Insurance plan. And to think that we lived through this fiasco in Florida in the early 90's. I guess history really does repeat itself.

To take a line from Poltergeist...."they're back..."

[Big Dog]

So...someone else besides me things that a self-insured PEO is like an oxymoron. Good.

[Rob Comeau]

I understand the skepticism with all the poorly run PEO’s in the past and present marketplace but you would be mistaken lumping an organization like BBSI into that bucket. Our financials are public record as we are a publicly traded organization. Go to http://www.barrettbusiness.comand click on investor relations or go to any other site of your choice to view our financial viability. If you’d like to verify our Self-Insurance in the State of California feel free to go to http://sip.dir.ca.gov, our certificate number is 2246. BBSI is on the cusp of cracking into the fortune 1000 and has been in business since 1951 with Self-Insurance in California since 1995. We are not your typical PEO as our revenues exceed $1BB and our client retention rate is outstanding. We work with the elite in the broker community and have hundreds of references should you decide to reevaluate BBSI as a specific option as opposed to positioning us with the average “PEO” world. Either way I wish you gents the best of luck in this upcoming year for new business.

[WorkComp&Sense]

First, my apologies as I was not specifically singling out Peo's. Rather, I was singling out "Self-Insured" plan re-sellers. Group Trusts, SIF's, etc. There is no substitute for an admitted, regulated, stock/mutual workers' compensation insurance plan.

The California statistics support the strength and longevity of Self-Insured groups on their own. With 309 private self insured employers and 26 industrial specific groups currently in existence; these numbers pale in comparison to the 2,328 former self-insureds' that are still paying claims. That's former but still paying claims.

When a group of self-insured's cannot make claims payments, they get assessed and few businesses can budget for an assessment that comes in 2-3 years after the specific claims for that period develope into an assessment situation.

Don't get me wrong, a single self-insured company definately controls their own destiny. Start adding multiple employer employees to the mix and any one of them can cause the other to get an assessment.

Best of luck to your program and your reinsures and remember, reserve, reserve, reserve.

[Big Dog]

You've pointed out one of the big concerns regarding "self-insurance". Working for an entity that is self-insured for its General and Professional Liability exposures (we're a large healthcare provider) in itself, we can provide the third party documentation (i.e. "Investment Grade" S&P rating) to show we have the finances to back up our self-insurance.

What concerns me about a self-insured PEO is the diversity of clients they have. The spread of risk could be so broad (everything from light duty clerical to heavy end construction), that it would be extremely difficult to properly reserve for MPL.

Add into that being a public company isn't a guarantee either. BTW, had to chuckle at the comment about working "with the elite in the broker community".

[Rob Comeau]

Hey gents,

Thanks for your responses and feedback. We reserve our claims adequately and as an organization would rather not grow then grow our book with bad business. The underwriting and hands on cost control metrics that we extend to our clientele ensure a healthy book of business. If you ever want to have a phone call discussion further on the California marketplace or the BBSI program, please feel free to contact me. 949.510.1126

Have a great weekend,

Rob Comeau

[badger]

Rob, what is your website address

[Rob Comeau]

Our website is http://www.barrettbusiness.com. If you'd like additional information I'm happy to send you a PowerPoint as well. We were founded in Oregon and are amongst the 3 largest employers in the State.

[badger]

please send me the power point,Rob

[Self Insured Broker]

PEO's can offer tremendous value and resources, however, there is an industry credibility factor from some ruthless PEO's that essentially ran a Work comp ponzi scheme.
As far as Self Insured Groups, yes there have been debacles from the CRM New York programs, AIK in Kentucky and cetainly several other high profile SIG insolvencies. There will most likely be some future California problems. However, my general experience is that many SIG's run circles around carriers for the value they provide to the members. Self Insurance Institute Of America has compiled several SIG profiles highlighting some great SIG programs. I would encourage anyone that has doubts about SIG's to review the profiles at www.siia.org -Work comp Section - News, one of our profiles is a trucking SIG that has generated $50mm of surplus and dividends since 1993 with no assessments

AmBest has acknowledged substantial improvements in the operating performance of Work Comp SIG's that have an AM Best rating compared to insurance carriers.

[Chris G]

In my opinion, Barrett Business Services, relative to some of the other PEO's, does a pretty nice job. Trinet does a good job also on higher end folks - but their pricing can be steep. Having spent 15 years in staffing/payroll prior to opening my P&C firm, the one concern I have with the PEO model is the PEO not honoring the $7000/ee SUTA/Futa threshold.

In otherwords, the PEO continues to collect the tax on state and federal unemployment (at least 4.2% of payroll) and doesn't let their client know. On a 30 ee company w/$1MM payroll, that puts an additional $33,000 into the PEO's pocket. I love selling to those accounts. I love seeing the owner realize that he can immediatly save $33K. Not the case all the time. Check the (bundled - FICA, SUTA, FUTA, WC) invoice for an employee in January and compare the same employee in December. If it's being billed at the same rate ... you got a terrific sales opportunity. Applied Underwriters???