As Captive Review celebrates its 25th birthday, they have released a list of the 25 most influential people in the captive space in the last 25 years. Our Managing Partner, Karin Landry was featured in their list for her expertise in risk management and alternative risk financing solutions. You can find the full article here.
As seen in the New England Employee Benefits Council (NEEBC)’s blog.
Paid Family and Medical Leave continues to evolve throughout New England and the country. While most of the activity has been at the state level, proposals have also been put forth federally. The programs passed by states vary in a number of ways, which leads to complexity for employers trying to navigate this landscape. Compliance concerns and complexities have also grown as the trend for remote work has continued, and employers that hire across the nation must comply with laws where employees work.
Massachusetts: Experience Over the Years
We have now completed our third year of the Massachusetts Paid Family and Medical (PFML) program! In those three years, the program has seen changes in contributions, benefits, claims experience, as well as changes to how it operates and coordinates with other benefits.
As shown in the summary below, the number of applications for the MA state PFML program has increased annually, as well as the number of approved claims. The most common reason for leave is own medical condition, while bonding with a new child is slightly lower in FY 2023 than FY 2022. Additional points of interest are shown below.
MA PFML Increases as of 1/1/24
The MA PFML weekly maximum benefit amount and contribution rate increased effective January 1, 2024. The maximum weekly benefit is now $1,149.90, which is an increase of about $20 from the 2023 weekly maximum. For any employees who may have leave that runs from 2023 into 2024, the weekly benefit will be based on the beginning of the benefit year.
The total contribution is increasing from 0.63% to 0.88%, for employers with 25 or more covered individuals. The medical leave contribution will be 0.70%, with employers funding 0.42% and employees responsible for up to 0.28%. The family leave contribution will be 0.18%, with employers able to collect the total contribution from employees. Employers with less than 25 employees are not required to submit the employer portion of premium, so the effective total contribution rate is 0.46%.
The financial earnings requirement was also updated in 2024. Employees must have earned at least $6,300 and 30 times the PFML benefit amount during the last 4 completed calendar quarters to be considered eligible for MA PFML.
Additional Changes to MA PFML
Effective November 1, 2023, employees taking Paid Family and Medical Leave (PFML) in Massachusetts have the option to “top off” PFML benefits with available accrued paid leave (e.g., PTO, etc.) so the employee can receive up to 100% of their regular wages. This was not previously allowed for employers providing PFML through the state plan, however, was an option employers could allow through a private plan. The Department amended its FAQs in December clarifying employers can apply the terms of their company policies to the top up option.
Connecticut: A Year in Review
Connecticut has now had PFML benefits available for 2 years. The program continues to grow, as shown in the summary below.
Based on the experience in the state in 2022 and 2023, Connecticut is not making any major changes to the program in 2024. The contribution rate will remain at 0.5% up to the social security wage contribution cap, which is increasing to $168,600 in 2024 ($160,200 in 2023). In addition, the CT minimum wage increases to $15.69 per hour in 2024, which correlates to an increase of about $40 for the maximum weekly benefit, now $941.90.
Connecticut’s Key Differences
The CT PFML program has some key differences when compared to MA PFML, such as the availability of leave for organ and bone marrow donation, as well as leave related to family violence. Differences in benefit amounts, leave duration, and eligibility conditions make it not directly comparable to MA PFML experience.
Rhode Island: Changes for 2024
Rhode Island established the first statutory disability program in the country in 1942, known as Rhode Island Temporary Disability Insurance (TDI). In 2014, they became the third state to offer family leave benefits through temporary caregiver insurance (TCI). The state does not allow private plans, making the model slightly different than other PFML programs in the region.
On January 1, 2024, a few updates to TDI and TCI became effective. The state’s taxable wage base increased to $87,000 in 2024, up from $84,000 in 2023. The contribution rate in 2024 is 1.2%, which is an increase of 0.1% from the previous two years. The maximum weekly benefit is $1,043, not including the dependency allowance8, and the minimum weekly benefit is $130.
The financial eligibility conditions claimants must meet increased. Employees must have paid contributions of at least $16,800 in the base period or meet the alternative conditions wherein they earned at least $2,800 in one of the base period quarters and base period taxable wages equal at least $5,600.
Rhode Island provides data on a weekly basis, which can be found on the State of Rhode Island Department of Labor and Training’s website.
New Hampshire: The First Year for the First Voluntary Program
New Hampshire began paying benefits for the first Voluntary PFML Plan in the nation on January 1, 2023. New Hampshire employers can purchase coverage for 6 or 12 weeks through the state’s insurance carrier, MetLife, at any time. Employers may purchase coverage through other carriers, however the 50% Business Enterprise Tax (BET) Tax Credit will not apply. Individuals who are not covered by a NH PFML plan or equivalent plan may purchase individual plan coverage for 6 weeks. Individuals may only enroll during the open enrollment period, which is December 1, 2023, through January 29, 2024, for the 2024 plan year.
Premium amounts are determined through the underwriting and enrollment process but may not exceed $5 per week for individuals. No limit applies to employer premium.
The maximum weekly benefit for NH PFML is 60% of the Social Security wage cap ($168,600). Therefore, the maximum weekly benefit is $1,945.38 in 2024, an increase from $1,848.46 in 2023.
The state has not yet published 2023 claim data.
Other New England Updates
In addition to Massachusetts, Connecticut, Rhode Island, and New Hampshire, Vermont and Maine have evolving PFML programs.
Vermont launched their voluntary Family and Medical Leave Insurance (FMLI) program in 2023. Beginning on July 1, 2023, state employees were covered under the program. Other private and public employers with 2 or more employees can access the program on July 1, 2024, and small employers with one employee and individuals can purchase coverage for benefits beginning on July 1, 2025. Similar to New Hampshire, Vermont will offer 6 weeks of benefits at 60% of the Social Security wage cap. Cost will vary.
Maine officially created their Paid Family and Medical Leave program through the budget signed on July 11, 2023. Rulemaking will launch in 2024, with contributions beginning January 1, 2025, and benefits becoming available on May 1, 2026.
Are You Up to Speed?
Outside the region, California, Colorado, Delaware, Hawaii, Maryland, Minnesota, New Jersey, New York, Oregon, Washington, and the District of Columbia, as well as Puerto Rico, have mandatory paid family and medical leave and/or statutory disability insurance programs either in place or launching in upcoming years. As the PFML landscape continues to evolve at the local, state and federal level, policies need to be monitored on an ongoing basis.
PFML requirements are based on an employee’s work location. Employers should ensure they are compliant with the requirements of each individual leave program where they have employees working, and are aware of the differences by state. If any of your employees are subject to state PFML, you should review plans, policies, and processes to confirm they align with any legislative changes. To do so, the following checklist can be helpful:
- Register in any new states where employees work, if required
- Review your contribution strategy and ensure contributions are being collected
- Update employee notices and benefit documentation
- Consider private plans where available and in accordance with your corporate philosophy
- Ensure company sponsored leave programs coordinate with PFML to the extent possible
- Monitor changes in legislation that may impact compliance
If you need assistance ensuring PFML compliance or to assess the optimal plan set up for your organization, visit our Spring Consulting Group Paid Family and Medical Leave dashboard for additional information.
In a recent article published by Yahoo Finance, Reliance Matrix was ranked as the most popular absence management provider according to Spring’s annual 2023 benchmarking survey. Check out the full article here.
In a recent article published by BusinessWire, Reliance Matrix was ranked as the most popular absence management provider according to Spring’s annual 2023 benchmarking survey. Check out the full article here.
Spring’s Senior Vice President, Prabal Lakhanpal will be presenting at Business Insurance’s World Captive Forum on January 25, 2024. His session will cover new emerging risks and provide tactics for improving captive risk distribution frameworks. You can find the full update here.
As Seen in Captive International’s Cayman Focus 2024
Total cost of risk (TCOR) is a buzzword in the insurance space, but it is a metric that carries significant operational weight, and can mean different things depending upon the organisation. There is no tried and true approach to TCOR, but we have gleaned valuable insights after consulting on the topic across a range of companies and risk profiles.
Leveraging those insights, we are sharing here a foundation for framing TCOR at your organisation, keeping in mind common dos and don’ts we have come across.
What is TCoR?
It’s important to start at the beginning. While there are various definitions out there, the International Risk Management Institute (IRMI) states that TCOR is the sum of all aspects of an organisation’s operations that relate to risk, both the cost of managing risks and the cost of losses incurred. These costs typically fall into the following categories:
- Retained (uninsured) losses and related loss adjustment expenses
- Risk control costs
- Transfer costs
- Administrative costs
More sophisticated risk management programmes may have internal risk control costs, whereas for other organisations these may be embedded into what is paid to a carrier with the goal of controlling loss.
Commercial insurance premiums are a prime example of a TCOR driver, representing what you are paying to transfer certain costs to the commercial or reinsurance market. Even for organisations with a captive, which is known to save organisations money in the long term, a risk transfer premium is still happening from the parent company to the captive.
Further, whether or not a captive programme is in place, most companies, especially those on the larger side, still retain a portion of their risk on their corporate balance sheet (eg, cyber deductible).
Building your TCoR
What constitutes TCOR varies across industries and company but regardless it can be backed by sophisticated risk management models as well as simpler calculations.
From a broad perspective, commonly overlooked considerations when it comes to tracking TCOR include:
- Beyond the frictional carrier or captive out-the-door premiums, other items budgeted for on the insured side such as safety programmes, loss control, and bonus programmes should be evaluated for inclusion or exclusion. If they are tracked within a captive premium (as is typically the case with loss control), such items are captured already so a company needs to be cognisant of not double-counting.
- Investment and underwriting income. Generally captives are priced to earn underwriting income and also earn investment income on the held assets to pay for unpaid claims. This income should be accounted for, which results in a lower TCOR.
- Softer costs such as risk management or safety personnel should be assessed for inclusion. Overall, consideration beyond obvious face-value expenses and including ancillary factors across the company provide a more robust calculation. Actuarial estimates of claims should be utilised for validation. Avoid relying solely on loss runs as this creates volatility because the third-party administrator (TPA) is typically only booking case reserves in the incurred claim estimates without factoring in the actuarial incurred but not reported development.
- Evaluation dates and look-back periods provide for quality tracking and the generation of trends, and should be assessed at various points in time. This is important when trying to compare the costs of various programmes related to budget and cash flow.
Perhaps most important is the need for year-over-year consistency regarding what is included in TCOR and what is excluded.
Who uses TCOR?
TCOR is meaningful to different stakeholders depending on the company, but these key audiences have important use cases for TCOR as follows:
- Risk managers leverage TCOR to show how they are approaching risk management and demonstrate how the company should retain risk, either through a captive premium or another method, as well as recommend what portion of risk should be transferred.
- Finance/accounting departments use TCOR to stress test and illustrate how much the organisation can afford and then plan for budgetary items that should reduce stated risk.
- Property and casualty (P&C) brokers care about TCOR because it enables them to benchmark and perform retention analyses in order to optimise programmes and mitigate volatility for their clients. TCOR allows them to make an apples-to-apples comparison year over year.
Trends and best practices
TCOR should not be touted simply because it sounds good. It needs to be grounded in analytics, formal reviews, and comprehensive reporting that outlines how TCOR is arrived at and what it means for your organisation. For large companies, TCOR may be factored into bidding, procurement, and contract processes. For smaller companies, there may not be enough critical mass to validate a self-funded approach, which means you’re more susceptible to market conditions and capacity.
From an organisational standpoint, TCOR plays a significant role in (i) accountability and compliance; (ii) making sure all assets, certificates of insurance, and contracts are listed; (iii) employees are accounted for; and (iv) there are no gaps in coverage that could change TCOR unexpectedly at the end of the year.
A vital step in TCOR evaluation and a captive feasibility study is considering overarching goals. If your company is looking to stay at cost, then moving to a captive may not always be the best play and you may be better off in the commercial market. This is why, as part of a TCOR analysis that is embedded within a feasibility study process as a means to reduce risk, alternative retentions in the market should be evaluated and the different scenarios to determine whether or not a captive makes the most sense outlined.
Other pieces of TCOR wisdom we have gathered over the years include:
- Fluctuations will happen from year to year, but some of the more volatile components are captive income and retained claims.
- A common misconception is that by increasing retention, lowering limits, or both combined, a reduction in TCOR will automatically occur. This may be true but is not necessarily so, as these practices could also expose the company to more risk than anticipated and that loss potential may not be appropriately projected.
- Consider this: with cyber and umbrella coverage becoming expensive for companies, let’s say you drop cyber entirely and lower limits to reduce TCOR by 5 percent. But then there’s a $3 million loss within that layer that would have been covered by policies you no longer have, so even though your budgeted TCOR went down by 5 percent, your realised TCOR increased by 10 percent due to the new loss.
- Analysis should consider different scenarios: what could happen, versus a straight-line evaluation.
- Ensure that at the time of increasing or decreasing a limit or removing a policy altogether, all parties agree to this move and it is documented to avoid questions after the fact.
- Benchmarking TCOR should be taken with a grain of salt, as practices are varied and factors such as captive versus no captive, geographic risk class differences, treatment of risk management admin costs, inflation and payroll may be working behind the scenes and can prohibit a direct comparison between two different organisations.
Conclusions
TCOR is complicated, but it is important to take a wide view of all the pieces of the puzzle, and then find the correlations and mitigation strategies available through the buying process. Captives need to understand how to budget for TCOR, how to build it at your organisation, and then how to interpret it year over year.
Strong TCOR practices can lead to improved risk management, smoother claims processes, and overall lower costs, especially for growing companies. A thoughtful TCOR approach serves to unify all your insurance stakeholders, from risk managers to CFOs, in understanding insurance spend and ultimately the total cost of risk.
Captive International has released the winners for the 2023 US Awards. Spring is proud to announce that our Managing Partner, Karin Landry won the Best Feasibility Study Individual. We were also highly commended for Best Actuarial Firm, Top Feasibility Study Firm, and Top Captive Consulting Firm. Our team was also highly commended for the following: Best Individual Captive Consultant (Karin Landry & Prabal Lakhanpal), Best Individual Feasibility Study (Prabal Lakhanpal) and Best Actuary (Peter Johnson & Nick Frongillo).
Spring has been recognized as one of the Top Employee Benefits Consulting firms in Massachusetts by Mployer Advisors, who focus on connecting employers with top-rated insurance advisors. We’d also like to congratulate our colleagues at Boston Benefit Partners, An Alera Group Company, for making the list as well! You can find the full update here.
Our Senior Vice President, Prabal Lakhanpal was featured in a Global Captive Podcast episode, during which they discussed Spring’s client, The Haskell Company. Haskell is a privately-owned engineering, construction and architectural firm that was able to reduce insurance costs, optimize coverage, and introduce new lines of risk by switching to a captive. Check out the full episode here.