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A professional employer organization (PEO) is intrinsically the same as a temporary staffing company. Like a temporary staffing service, employee leasing recruits employees and assigns them to clients to support or supplement the client’s workforce. Their job is to fill any number of work situations when a regular full-time employee is not available, such as; employee absences (long and short-term), temporary skill shortages, or seasonal workloads.
Traditionally, these workers represent only a small portion of the client’s overall workforce. PEO services contractually assume and manage employee administration for all or a majority of a client’s workforce. Industry ratios identify the employment company arrangement as a long-term relationship with nearly 90% of clients and worksite employees remaining with the organization for a year or longer. PEO insurance allows employees to participate in a full range of employee benefits, including health benefits and a retirement savings plan.
Why many employers prefer using a PEO
These firms provide an invaluable service. By using these employee-leasing service providers an employer can then outsource employee management tasks, such as workers’ compensation, employee benefits, payroll, recruiting, risk and safety management, and training and development. The PEO is able to do this by hiring a client company’s employees, thus becoming their employer of record for tax purposes and insurance purposes.
PEOs are based upon the co-employment of an existing workforce. The major distinction is that an employee leasing or staffing service supplies new workers on a part-time or temporary basis or for a specific project. These leased employees return to the staffing service for re-assignment to other companies after the completion of their contract for the client.
PEO insurance is needed for all off the same risks and exposures that other companies have to consider before they ever open their doors, since their staff seeks financial security, quality health insurance, a safe working environment, and opportunities for retirement savings. They also often provide higher quality employee benefits including:
- Dental and life insurance
- Vision care
- 401(k) savings plans
- Aggressive workplace risk management, and
- Safety manuals
Leased employees may get sick and miss work, much like full-time employees. They depend on health insurance to get them through their period of illness, pay for any medical bills or extended hospital stays, and eventually for their return to work. Having a 401k provides them with a retirement fund, while safety manuals and a sound risk management strategy shows both, the employer and the employees that the PEO is concerned with workplace safety and is instrumental in providing the proper training and awareness about what activities should or should not take place in a work environment.
photo credit: D.Clow – Maryland cc
A captive is a closely held insurance company whose insurance business is primarily supplied by and controlled by its owners, or in other words, the owners insure their own business entity in an attempt to reduce costs and create a stronger profit margin.
Captives are usually domiciled either offshore, or onshore in a specialized location, and in some instances write business unrelated to their parent company. Captives are formed for many reasons:
- Lack of commercial market for certain lines of coverage
- Desire to recapture underwriting profits and investment income
- As a means to access the reinsurance market, or
- As a means of diversifying into insurance services
Captive solutions are used to cover risks situated both at home and abroad, and for the most part are extensively used by major corporations. Most of these have been implemented in the US, the United Kingdom, and Europe, but considerable interest has been evident in Japan, Australia, and South America.
With the lowering of trade barriers throughout the world, which has increased companies doing more business internationally, insurance buyers are taking on more risk financing by way of insuring themselves. Captives can play an integral role in the successful implementation of a global risk financing strategy.
The benefits of risk self-management
Captive implementation is one of the premier alternative risk finance solutions. It has gone from a counter measure to rising premium costs, to providing potential benefits to companies that initiate the process, including; enhanced ability to manage the retentions and deductibles associated with traditional risk transfer programs (by forming its own subsidiary insurer to handle much or all of its own risk).
A company will also be freed from the control and restrictions of the commercial insurance market; the flexibility to fund not only traditional coverages (such as general liability, workers compensation, auto liability, property insurance, and employee benefits), but also difficult-to-insure exposures (including environmental risks and employment practice liabilities).
In addition it gives a company the ability to facilitate the most effective claims-handling methods and loss-control programs, along with creating a self-owned insurer, which may offer the benefits of greater control and reduced costs, both of which have a significant impact on economic security and profitability.
In closing, many captive solutions may provide significant revenue benefits. Premium payments are made directly to the captive, allowing reserves for unpaid claims and unearned premiums to be invested. These additional revenues further strengthen the captive, which can lead to even more favorable reinsurance opportunities.
photo credit: woodleywonderworks cc
Most, if not all, larger publicly traded companies have insurance for their directors and officers, while some smaller companies have a misconception that it may not be necessary to provide this important protection. In many instances this could be a costly mistake, as directors and officers (D&O) liability for private companies provides for board members who may become targets of litigation.
Shareholders or investors who feel that some type of wrongdoing has occurred (and put the blame squarely on the shoulders of one of the board’s directors) often file claims. Competitors, customers, employees or even government agencies can make similar claims and the cost of defending such claims can be ruinous, especially if a claim’s judgment or settlement amount reaches into the hundreds of thousands of dollars or more.
D&O liability coverage protects directors and officers against all types of claims
It is a sound idea to add D&O to the insurance protections already in place for most businesses, for any or all of the following reasons:
- While private businesses may not trade company shares on a public exchange, they do have investors, who expect to turn a profit on the money they have invested. With new business enterprises having a more difficult time getting off and running, if investors suddenly lose their start-up funds, they may seek recourse against the firm’s top executives in the form of a lawsuit, alleging misappropriation of funds.
- Many private companies are established believing that, over time, the business should succeed and the company can go public. If this is the case, a D&O policy can protect the founding entrepreneurs against claims by shareholders and/or investors who make claims that the sales price wasn’t up to expectations.
- Directors and officers of private companies are often active, hands-on business executives, and are very involved in their company’s business operations. Due to this fact, their actions, especially if things go sour, are more likely to be called into question.
- Employment practices liability litigation claims of sexual harassment, discrimination, and wrongful termination are all growing in number these days. These types of lawsuits can have devastating results when settlements are handed down. Hands-on management by a private firm’s key executives makes them easy targets for claims of this nature. A combined D&O/EPLI (employment practices liability insurance) policy makes sense for these firms.
The concerns are real, which is why securing directors and officers for private companies is always the right choice.
photo credit: Highways Agency cc
Attorneys professional liability insurance coverage amounts and costs can depend on the size of the firm, the types of cases litigate and services provided, among other factors. But many firms may not have the right amount of coverage – especially during tough economic times when a growing number of firms lowered their coverage levels in order to lower premiums, which could be a great concern due to the litigious nature of our society.
In most jurisdictions E&O insurance is required, if not by law, merely as a common sense approach to being in business. Why would you want to risk your practice by not having a policy that protects you in the event that a client sues you? Notwithstanding other matters, the reality is that many lawyers like anyone else in any other line of professional work want to protect themselves from a disaster (even if they feel chances are it won’t happen to them) or potential significant liability judgment.
Getting the right amount of coverage
Different types of lawyers and firms have different risks and exposures. Given that reasoning, the issues involving coverage are often defined by what is seen as an appropriate premium level. Your law firm should approach its professional liability coverage needs from a position of clarity, making determinations based upon an internal analysis of the risks you may run in handling your particular business. Firms and individuals that are generally considered to have greater risks (among them defense attorneys and personal injury lawyers) therefore require higher coverage levels.
Firms handling ordinary business affairs are generally considered to have less risk. It is really up to you to determine where you fit in with regards to the consideration of how much risk is inherent and how much attorneys professional liability insurance is right for you. Speak to an insurance agent to help you determine the appropriate levels of coverage you may need to protect yourself and your business.