Worplace-Safety-Workers-Compensation-Worker-Injury-ConstructionNAPEO recently conducted its Texas Leadership Council Forum in Austin, Texas.  One of the featured speakers was Texas Mutual’s Senior Manager of Corporate Underwriting.  He provided a thorough update of Texas Mutual’s position in the PEO marketplace as well as a brief industry overview. During his presentation, he was asked the following question:  “As Texas continues its transition to the NCCI platform, how will the inability to continue to negotiate experience modification rates affect PEO pricing”?  His response was:  “we will price business to ensure that the rate we charge is adequate to cover the projected risk.”

Texas Mutual, like other insurance carriers, is a “for profit” enterprise.  PEOs will be charged at a “rate that is adequate to cover the projected risk.”  This means that aside from external market factors, PEOs will receive pricing based on the quality of the results generated by their risk management performance.  In simple terms, from a pricing perspective you will get what you earn—sometimes a little more, sometimes a little less.

Strategic PEOs can control their desirability to a carrier and directly influence the carrier’s pricing through establishing and implementing appropriate, proactive, risk management processes.

Risk management performance outcomes are directly linked to risk management processes. Risk management processes are no different than any other set of business processes.

How would your PEO answer the following questions?

  • Does our PEO view risk management/workers compensation insurance as a product or a solution? A “product” generates a profit or loss.  A “solution” is a revenue neutral service.
  • Does our PEO have defined performance expectations (and specific tasks) for each level of the risk management function? (Note:  performance measures should be upstream and proactive).
  • Have we established the frequency with which we expect our defined risk management tasks to be performed?
  • Do the employees in our PEO who are responsible for performing risk management tasks have the appropriate training and skills to enable their performance?
  • Have we established performance metrics that measure both the quantity and quality of risk management task performance?
  • How does our PEO measure the performance of our book of business—both in aggregate and at the client level?

The final question is—are we aligned with the right risk management partners (carriers and brokers/agents) to help our PEO achieve its risk management goals?  Do they have the resources and platform that will add velocity to our efforts?

Whether your PEO is currently in a guaranteed cost workers compensation program or in a risk sharing (loss sensitive) arrangement, effective risk management processes are critical to your success.  How does your PEO measure up?