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NCCI Says PEOs Questionable Reputation Not Deserved


NCCI Says PEO’s Questionable

NCCI says PEOs do not have questionable reputations. PEOs (Professional Employer Organizations) have long received somewhat of a bad rap from many different sources.  However, we have found them to be extremely helpful in aiding our clients in finding Workers Comp coverage in a difficult insurance market.

Picture Of Man NCCI Says PEO's Holding Big Question Mark

PEOs have also been a great vehicle for cash flow management.  We have often recommended that our clients include PEOs in their renewals as a great alternative.  Please note that not every PEO is one that a company should put their WC risk with as will be discussed in this article.

Last month at NCCI’s Annual Issues Symposium, the issue of PEOs was brought to light.  NCCI also found that PEOs when used in the right circumstance are not these under-the-radar sketchy companies that seem to go bankrupt all of the time.

In contrast, many Workers Comp insurance carriers and self-insureds have  gone “belly up.”  PEO’s bad developments also seem to make front-page news.  Some of the highlights of the NCCI report were:

Digital Element NCCI Says PEO's Infographic

% of Market

  • 1% – 2% of the voluntary market
  • 2% – 6% of the residual market – higher number due to insurance placement difficulty
  • 6% of the voluntary market in Florida
  • 30% of the voluntary market in Arizona – a surprising number

Reputation of Underreporting Claims Disproved

  • Actually had a higher number of claims – if claims were not being reported, the frequency would be lower
  • Loss Ratios tend to be lower – showing that underreporting and misclassifying are not problems with PEOs
  • E-Mods are comparable indicating no Mod manipulation

Industries Served 

  • No cherry-picking as industries mix the same as the regular market
  • Loss ratios across industry groups are similar except for the transportation industry
Picture Of Hand Drawing NCCI Says PEO's Time Saving Piggy Bank

One of the negative connotations of PEOs is they were responsible for three recent insurance company collapses.  The counter for that would be – did the carriers not properly underwrite the PEOs?

Single State PEOs did not fare well.   This could be attributed to the Law of Large Numbers.  In insurance, there must be a large enough premium base to offset a rash of losses.  The single-state PEOs may be affected by this phenomenon.

Multistate PEOs seem to do better than the regular insurance market.  This was an unexpected outcome which shows the Law of Large Numbers to be a true effect.   NCCI went to great lengths to study premium volume.  

Of the three large insurance company failures, lack of premiums was the main cause.  The Law of Large Numbers will bare its sharp teeth quickly when violated as with the three bankrupt carriers.


PEO Shortcomings (Very Few)


PEOs seemed to have more litigation than non-PEOs.  As with TPAs, claims handling must be monitored heavily by the company that signs up with a PEO.   A large number of PEO clients would have not qualified for a Mod rating.  Somehow, that is not really seen as a negative development.


Bottom Line –  (not from NCCI report)


You know what works best for your company.  NCCI or any expert may not provide you with the information needed to make a decision on a PEO.  PEOs are not for every company.  You have to decide if PEO’s are worth investigating for possible WC coverage.

My recommendation is a PEO broker.  There are a few shady PEO brokers – know who you are dealing with before making a final renewal decision.  From a loss reduction viewpoint, they can easily be one arrow in your quiver to reduce your insurance costs.

Please note that we are not agents and do not directly place insurance policies.  We are advisors. 

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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