Increase in Temporary Staffing Business Signals Economic Recovery

For many businesses, 2010 was a year of transition. Companies began to pickup the pieces of the economic downturn and were cautiously optimistic by bringing on temporary staff to help, rather than hire permanent employees. Experts say that’s a good sign.

“Staffing is a good indication of the direction of where the economy is going,” said Richard Siemer, president of CTK North American Insurance Services. “When the economy looks bad, temps get let go first, and when it is recovering temps are hired back first. Companies don’t want to hire a full-time person until they know they need it.”

“Staffing firms are a leading indicator [of an economic improvement],” said Peter W. Stanislaw, vice president and director of U.S. Risk’s (formerly Lighthouse Underwriters) StaffPak program. “Typically when unemployment levels begin to drop, the staffing industry picks up first.”

Stanislaw said there has been a trend with companies using temporary employees rather than hiring permanent employees. In light of economic uncertainty, temporary employees are easier to hire and easier to let go if that becomes necessary, he said. They are also cheaper to employ because companies are not required to provide them with health benefits or other full-time benefits such as retirement plans.

Underwriters call 2010 a recovery year for staffing firms because their business increased, which makes underwriters optimistic about where this class and the economy are heading.

“Staffing firm businesses have been improving,” Siemer said. “Revenues and payrolls have been gradually improving throughout this year. There have been some periods where they have taken a step backward, but most recently the business has been improving at a quicker rate for them. From our perspective, we wrote more new accounts [in 2010] than several years previously.” Stanislaw agreed.

“Within the past six to eight months, we have seen increases in projected temp payroll,” he said. “[Staffing firms] are also opening new locations and there are more startups. These are all indications that the staffing industry is definitely doing better than it was.”

The challenges in this class aren’t just related to the economy, however. Competition is fierce in the staffing firm segment, although only a handful of companies offer specialized programs.

The best way for companies to differentiate themselves in the staffing firm class, according to underwriters, is to be an expert and offer a program that provides all the coverages a firm needs. That usually includes: workers’ compensation, employment practices liability, property, crime, general liability, umbrella and auto.

Aaron DiCaprio, executive vice president of Reliance Administrators, formerly worked with Hull & Co. and Lighthouse Underwriters. He started with Reliance in July to develop a new staffing program, which was launched with The Meadowbrook Group in mid-December and offers coverages staffing firms need.

DiCaprio said his experience and the specialized program put his company in a good position in this class, even with the competition. The company also plans to launch a program for professional employment organizations (PEOs) this year.

“We are going to be really flexible with coverage,” DiCaprio said. “Meadowbrook has been a good partner. They are willing to listen to what the industry is saying and if we need to make changes in stride, we can do so.”

U.S. Risk, which also offers a package of coverages for staffing firms, is focusing on providing a quality package of coverages rather than price. Stanislaw said all the competition in this space often leads to low pricing and irresponsibility on the part of insurers.

“The toughest challenge for us is carriers that are in this space that don’t underwrite very carefully and we feel price recklessly,” he said “We run into situations where a competitor provides EPL coverage and the staffing company doesn’t have an employee manual … we are thinking how do you defend yourself if sued? It is irresponsible.”

Stanislaw said good agents can help a staffing firm truly navigate around various perils and should serve them as a risk manager rather than just an insurance provider. “Insurance is one tool obviously, but not the only tool for mitigating risk,” he said.

According to DiCaprio, agents need to dig down deep to what types of services staffing companies are providing, whether it is payroll, PEO services, or construction staffing firms. “It is really important to know the services and products insureds are offering,” he said. “Ask a lot of questions and be that true partner to them.”

Siemer said he is optimistic for this space, despite the competition, and there is plenty of opportunity for agents who do become specialists.

“There are a lot of staffing firms out there,” he said. “And a lot of new staffing firms are cropping up and need insurance.”

Topics Underwriting