PEO Workers Compensation and Master Policies
In consideration of coverage for a Professional Employer Organization or staffing firm, a Master Policy is the best type of Workers Comp Policy afforded to the insurance model for PEO’s; as it offers several benefits unique to a PEO Insurance relationship. First of all it relates to the economies of scale wherein a PEO can leverage the “combination of all premiums” for the PEO corporate employees as well as all their clients. What makes this unique to the insurance industry are the rules that govern who can be an insured on a given policy for workers compensation. The rule as noted by NCCI and basically the norm throughout the insuring industry is that “Entities with ownership in common of 51% or greater may share a single policy.” So the opposite of this is if you have less than 51% common ownership, you cannot share a policy of workers compensation.
Sharing a Master Policy
So how does a PEO and their clients share a Master Policy when there is not common ownership? The key is the Co-Employer Agreement. It is the accepted mechanism that establishes the unique relationship; However, NCCI and many state bureaus have resisted the model which NAPEO has consistently advocated. It remains a battle for our industry and a constant reminder of the necessity to pursue our legal certainty of this insurance model. Maintaining industry continuity through the validation of the Co-Employer agreement as respects to the workers compensation statutes will be the pivotal element in keeping the Master Policy option.
Secondly, the combination of premiums enables the economies of scale pricing option. The ability of a PEO to manage a Guaranteed Cost, Retro-Retention, or Large Deductible program to which underwriting profit can be attained through tight underwriting, risk management, loss control and claims management. This isn’t advocating the arbitrage of your Workers Compensation program for profit in lieu of other more consistent and potentially lucrative venues, but a well run program can net profits.