The insurance landscape for staffing companies is undergoing a significant transformation, presenting both challenges and critical considerations for firms navigating this complex environment. Akker, LLC, specializing in staffing insurance, has observed substantial shifts that demand attention from staffing agencies to ensure robust protection and sustainable operations. These changes, driven by evolving market dynamics, increased risk appetites, and a hardening insurance market in specific areas, directly impact the availability and cost of essential coverage.
Here's an in-depth look at the key changes Akker, LLC is noticing in staffing insurance:
1. The Evolving Underwriting Landscape: Carriers Getting Pickier
One of the most notable trends is the increasing selectivity among insurance carriers. Insurers are becoming more discerning about the types of staffing companies they are willing to underwrite. This heightened pickiness is often a direct response to a more volatile claims environment and a re-evaluation of risk profiles within the staffing sector. Carriers are meticulously scrutinizing a firm's operational history, safety protocols, employee classifications, and overall risk management practices. Staffing agencies with a robust commitment to safety, strong hiring and training practices, and a clear understanding of their specific risk exposures are more likely to find favorable terms, while those with a less defined approach may struggle to secure comprehensive coverage.
2. Workers' Compensation: Navigating Higher Hurdles
Workers' Compensation insurance, a cornerstone of protection for staffing firms, is experiencing significant changes, particularly concerning minimum premiums and risk assessment. Akker, LLC has observed:
Increased Minimum Premiums: For staffing companies dealing with heavy exposure class codes (e.g., manufacturing, construction), minimum premiums of $100,000 or more are becoming common. For administrative and IT staffing, minimums around $10,000 are increasingly prevalent. This shift means that even smaller firms or those with lower perceived risk in specific sectors are facing higher baseline costs.
Evolving Risk Factors: The workers' compensation market for staffing agencies is influenced by several factors beyond just the industry itself. The distinction between staffing and temporary agencies is crucial, as temp agencies may see higher injury claim frequencies due to short-term, high-turnover jobs, necessitating different policy considerations. Staffing firms are generally considered the legal employer, making them responsible for providing coverage even when employees work at client sites, which adds complexity, especially for agencies operating across multiple states with varying workers' comp laws.
Impact of Modern Workforces: Changes in the employer-employee relationship, driven by factors like the rise of remote and hybrid work models and the gig economy, are redefining workers' compensation qualifications. For example, recent legislative changes, such as the repeal of California's AB 5 "ABC test" for gig workers by AB 1928, and the Department of Labor's "economic reality" test, highlight ongoing efforts to clarify worker classification. These shifts can influence claims and loss development, particularly as employees return to in-office work, potentially increasing risk.
Claim Management and Costs: An agency's claims history significantly impacts its workers' comp premiums. Industries with higher inherent risks, such as construction or manufacturing, naturally face higher premiums. Furthermore, issues like the failure to rehire an injured temporary employee can lead to increased workers' compensation costs, as some states may impose statutory multipliers or increased benefits in such scenarios. Implementing strong safety programs, conducting pre-placement safety training, and performing job site inspections can help mitigate claims and manage costs.
3. Staffing Liability Insurance: A Shifting Foundation
The staffing liability insurance market has experienced a significant shake-up, impacting the stability and availability of coverage for many firms. A major carrier's exit from the staffing liability space and subsequent issuance of non-renewal notices has left many agencies scrambling to find alternative coverage. This event has highlighted the fragility of the market and the need for staffing firms to work with brokers who have deep market access and foresight.
While some segments of the broader management and professional liability market are seeing increased capacity and competitive pricing (e.g., Cyber, D&O), the specialized "staffing liability" niche appears to be tightening. This disparity underscores that while capital might be abundant in certain areas, carriers are becoming more cautious and selective in higher-risk segments like staffing, which can be prone to increased frequency and severity of claims, particularly in human services. This can lead to non-renewals and reduced limits from admitted markets, forcing firms to explore the excess and surplus lines market for coverage.
4. Umbrella Insurance: A Shrinking and Costlier Shield
Umbrella liability insurance, designed to provide an additional layer of protection above primary policies, has become increasingly difficult to secure, particularly for higher limits. Akker, LLC has observed:
Limited Availability of Higher Limits: Obtaining $5 million in umbrella coverage is no longer a given, as not every carrier is willing to offer it. Some insurers have even withdrawn from offering umbrella coverage entirely, forcing firms to piece together coverage from multiple carriers or accept lower limits.
Significant Price Increases: The cost of umbrella coverage has surged. What once cost approximately $1,000 per $1 million in coverage has now climbed to around $2,500 per $1 million. This dramatic price hike makes securing adequate excess liability protection a much more substantial financial commitment for staffing firms.
Capacity Management: The broader commercial umbrella market is experiencing robust growth driven by increased awareness of liability risks and the rising frequency and severity of claims. However, this growth has also led to "capacity management" by carriers. For certain verticals and risks with frequent and severe loss histories, leading limits of $5 million or greater are becoming less common, with $2 million or $3 million often being the new "lead." This trend aligns directly with the challenges staffing firms face in securing higher umbrella limits. Umbrella coverage is particularly critical in contexts like mergers and acquisitions (M&A) within the staffing industry, where complex liability risks necessitate robust safeguards.
5. EPLI: The Rising Cost of Protecting Your Workforce
Employment Practices Liability Insurance (EPLI) has also seen significant premium increases, adding another layer of financial pressure on staffing agencies.
Premium Hikes: EPLI premiums have been on an upward trajectory. This trend is largely fueled by an increase in employment-related claims, heightened employee awareness of their rights, and the evolving regulatory landscape surrounding employment practices.
Impact of Claims History: Staffing firms with a history of claims, such as wrongful termination or discrimination lawsuits, face a particularly challenging environment. Carriers are becoming pickier, leaving firms with claims histories with fewer options for new business. This increased scrutiny means that past claims can lead not only to higher premiums but also to difficulties in finding any willing insurer.
Industry-Specific Volatility: While the overall EPL market has shown some stability in certain areas, high-risk industries like staffing, healthcare, and hospitality continue to experience volatility. Factors such as a company's claims history, employee count growth, and geographical location (with California often cited as a problematic jurisdiction) significantly influence rate increases. The potential for single-plaintiff lawsuits to result in seven-figure settlements, even in pre-litigation, also contributes to insurers' cautious approach and rising costs.
Navigating the New Reality with Akker, LLC
The current staffing insurance market demands a proactive and informed approach. The changes outlined above—from increased carrier pickiness and higher minimum workers' comp premiums to a volatile staffing liability market, shrinking umbrella capacity, and surging EPLI costs—underscore the critical need for specialized expertise.
Akker, LLC's niche focus on staffing insurance allows us to intimately understand these evolving challenges and identify tailored solutions. We work closely with our clients to:
Mitigate Risk: By advising on best practices in risk management, safety programs, and employee classification, we help firms present a more attractive risk profile to carriers.
Access Specialized Markets: Our deep relationships with carriers specializing in the staffing sector allow us to access markets and solutions that may not be available through generalist brokers, even when a carrier exits a specific line.
Navigate Complexities: We assist firms in understanding multi-state compliance for workers' comp, the nuances of gig economy worker classification, and the impact of M&A on liability.
Optimize Coverage: We help structure comprehensive insurance programs that provide the necessary layers of protection, including creative solutions for challenging areas like umbrella and EPLI, ensuring our clients are adequately covered without overpaying.
In this dynamic environment, partnering with an insurance agency that truly understands the staffing industry's unique risks is not just an advantage—it's a necessity.
Contact Akker, LLC today to discuss how these changes affect your staffing firm and to develop a resilient insurance strategy tailored to your specific needs.
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