The pool isn’t always fun and sun. If your staffing company’s workers’ compensation (WC) program is part of a state assigned risk pool, you’re probably aware of the difficulties and headaches it brings. While there is variance in operations, advantages, and disadvantages among different state-run programs, the general consensus is that the assigned risk pool is the last place you want to be swimming.
Avoid the deep end
State assigned risk pools operate as non-voluntary insurance carriers. In short, if you’re accessing your state’s fund, you probably have no alternatives for insuring your WC and/or specific groups of exposure.
One major disadvantage is that class code rates and premium increasing debits are often highest in these assigned risk pools compared to insurance carriers in the voluntary marketplace. The higher the rating for a staffing agency’s WC, the slimmer the profit margin will become, making it more difficult to compete in the open market from a bill rate perspective. Additionally, some assigned risk pools lack flexibility with premium down payments, which can severely injure cash flow.
Depending on your state and whether it operates its own assigned risk pool (many states utilize an organization called NCCI to manage their state fund, while others operate on their own merits), you may experience difficulties with response times for simple requests or claims management. Some states take a significant amount of time to produce a bindable quote and/or require egregious amounts of documentation, which can drastically slow a business owner down from launching or expanding operations. As an example, Florida’s assigned risk pool typically takes 20-50 days to receive a bindable quote for a staffing company; California takes 40-70 days; while other states may only take 1-10 business days.
Additionally, certain states require a physical office with a full-time employee to maintain a policy through the assigned risk pool (California and Louisiana are examples), which can be challenging for expanding staffing companies without established contracts. If you’re insured through various assigned risk pools and plan to expand into other states, it’s essential to consult your insurance broker about specific requirements and processes of those states prior to signing any contracts with clients.
Jump in
Despite these challenges, there are instances where being in the assigned risk pool can work to your advantage. Start-ups and newer staffing companies need to build credible loss history before a voluntary insurance carrier will consider insuring them (typically require 3 years of history). In this instance, you can develop a plan with your insurance broker to move your program to the voluntary marketplace as soon as you have the right pieces to the puzzle lined up. More information on this can be found in our “Insuring a Start-Up Staffing Company” FAQ.
If most of your business is insured through a voluntary WC carrier (or captive) but you have specific high-risk class codes, placing those in an assigned risk pool can protect your “clean claims” track record. This allows you to have options within the voluntary marketplace without having to discontinue business under certain class codes due to your insurance carrier not wanting to insure them. However, if coverage is already maintained in that state, a new company/Federal Employer Identification Number (FEIN) must be opened to insure this exposure separately.
Some states offer a competitive side of their assigned risk program by offering dividend returns based on overall portfolio performance. Whether the voluntary marketplace is experiencing a hard or soft market cycle, there may be rare instances where insuring through your state’s assigned risk program makes the most financial sense, so consulting with your broker is essential, as they’ll have insights into how your state’s program differs from alternatives available for your staffing agency.
Know the pool rules
As mentioned above, there should always be rhyme and reason for why a staffing company is insured through a state’s assigned risk pool, along with a plan to move coverage into the voluntary marketplace. Insuring in the voluntary marketplace generally allows you to better manage (and lower) your cost of risk and improve claims handling, leading to more opportunities to garner interest from voluntary carriers over time.
If you have any questions on navigating the murky waters of the assigned risk pool, contact a Marsh McLennan Agency advisor today.
