Amid bleak employment indicators, placements by temporary staffing firms have surged over the last year. History suggests that such an increase foreshadows the reentry of words like “recovery” and “growth” into conversations about the economy.
Reaction is mixed. An optimist will tell you the burgeoning temp market signals that a rise in permanent employment is bubbling just beneath the surface. Others are not quite convinced, believing instead that it represents the workforce of the future: Satisfy demand, go away, no strings (i.e., benefits) attached.
Stock prices of the big temp firms have doubled since this time last year. Analysts at Bloomberg predict profits will double by year’s end. According to the Bureau of Labor Statistics, the number of temp jobs has jumped 10% in the last 12 months.
Business Talent Group, a firm specializing in interim executive talent, says its client demand rose 50%. Demand is especially strong for credentialed workers in highly specialized segments like healthcare. These facts put agents and brokers placing coverage for staffing firms in a unique position: Enjoy the growth but proceed with caution.
“There’s a sense out there that firms might use [temp] staffing on a more permanent basis going forward,” says Wayne Carter, president of Target Insurance Services, a managing general underwriter based in Avon, Conn. Carter warns inexperienced retail agents and brokers who are looking to grab a piece of this growing market segment: As the opportunities for writing such risks attract more participants, some competitors may offer products that sacrifice important coverage in return for price, he says.
Some competitors, for example, limit the employment practices liability insurance (EPLI) and errors and omissions (E&O) coverage for the temps when they leave the premises of the staffing agency. “Obviously, this is a severe coverage limitation that can cause significant damage to the insured if not identified,” Carter says.
Additionally, Carter warns against products that combine limits for E&O and EPLI because of the possibility that the limits available to pay claims may be rapidly depleted.
“We offer separate limits for E&O and EPLI,” he says. Target’s staffing agency program provides access to admitted products and caters mainly to clerical and light industrial workers. “We deal directly with retailers and wholesalers,” he says.
With growth in temporary staffing, many retail agents and brokers will continue to have the chance to write a large staffing account, and they don’t know what to do with it. “That’s when our expertise is really important,” says Phil Holderness, senior vice president of Executive and Professional Liability at Westrope, a Kansas City-based wholesaler. “We target temp staffing agencies,” he says. “We bring value. With these risks there are a lot of professional liability exposures you need to consider.”
He, too, sees EPLI as an often overlooked gap. “What if the temp staffer sues his or her temp employer? We discuss this issue and determine if the EPLI provides coverage not only for the staffing agency but also for the agency’s client,” he says. “It’s [for] reasons like this that we believe an off-the-shelf EPLI policy probably isn’t enough.”
Holderness agrees that there are “more than a handful” of carriers in the standard market that will cover a typical staffing agency’s exposures, but growth has spawned an increase in not-so-typical exposures that the wholesaler’s expertise can help retailers identify. If necessary, the broker can provide access to solutions from the excess and surplus lines market.
Inexperienced retailers are in danger of missing other important E&O exposures, Holderness warns. “The staffing agency receives a call from a potential client. The client requests someone with specific credentials, such as an ‘expert with ABC software.’ The agency sends someone over who is not qualified, and as a result, the client loses a large contract. Could the staffing agency get sued? Absolutely,” he says. He calls this “wrongful placement exposure” and explains that coverage is typically available through a standard market. The same cannot be said for what he warns is a growing phenomenon that he calls “malpractice-type exposure.”
“This is when the staffing agency provides highly skilled temps, such as accountants, lawyers, engineers, etc., and is sued for sending a professional whose error causes the client financial detriment,” he explains. This exposure is usually addressed by the E&S market, as standard products typically exclude it. “You will need an underwriter with experience in malpractice-type exposures, and they’re not easy to find,” he says.
The segment that’s expected to experience some of the greatest growth in temp staffing is also the most difficult to adequately insure. Holderness explains that agencies staffing doctors and other healthcare professionals typically must look to the E&S marketplace for coverage. “We look for medical staffing agencies because many retailers are not sure which underwriters like these accounts or where to take them,” he says.
Thus, the wholesaler’s role is critical for retailers trying to cash in on this growing but hard-to-place exposure. “If it’s out there,” Holderness says, “we can do it.”