CLASSIFYING RISK
By Linda D. Ferguson, CPCU
Relationship between agency and job
candidates determines classification
A decade ago a young Arkansas governor was running for the presidency. His campaign manager kept a sign posted at all times to remind everyone of the key message: "It's the economy, stupid." As we look to the coming election cycle the pundits tell us that the same message will determine who will be elected (or re-elected) in 2004. Although the economy has officially come through the recent recession, the recovery is being called a jobless recovery because of the high numbers of people still out of work.
Times like these cause both headaches and opportunities. Employment agencies always seem to be working in an arena where supply and demand just don't quite meet. Right now the firms that specialize in providing the labor pool for businesses are working hard, but they often have the supply in search of the demand. This is the opposite of the situation just a few years ago when the agencies had companies searching desperately for computer programmers but unable to find the supply.
There are three types of employment agencies operating in the labor market.
The most traditional type of agency searches for candidates wanting to find permanent placement with an employer. They have a limited relationship with the job candidate, but they may have a contractual longer-term relationship with the company searching for candidates.
The classification code for this risk is 43200 - Employment Agencies and the code premium base is area. This means that the primary exposures are those that are in the agency and the exposures don't extend beyond the premises. It doesn't matter if the agency is handling top executives or hourly workers; the price is the same for the same square footage.
A footnote helps explain the code. It states that Personal and Advertising Injury is excluded. Since the major exposures--leaking of confidential information and false advertising-- are excluded, the pricing is logical. Separate coverage will be needed for these two important exposures.
Another part of the footnotes heads us to the other types of employment agencies. It states that the 43200 code does not apply to agencies that (1) furnish employees AND that (2) maintain an employer-employee relationship with workers. The temporary employment agency is an example. The "temp" does not work for the assigned company but instead is employed by the temporary agency. In most instances the temporary agency must supply the workers compensation coverage and any benefits that the employee might have. All personnel problems are between the agency and the employee and not the company using the services.
The classification for the temporary employment agency is 47367- Sales or Service Organization. The code is based on payroll, but according to the footnote the only payroll to be used is that of the employees who are working for other employers and not the employment agency. Personal and Advertising Injury is included under this classification code.
An interesting part of this code is that this category could have significant exposure because of the definition of "employee" in the Commercial General Liability policy. The Commercial General Liability policy includes employees as insureds. It then proceeds to define employee and states that employee includes leased employees but not temporary employees. If a temporary employee is NOT an insured what happens if a suit is brought against the company where he is working because of his actions? The employment agency's insurance company will be expected to respond.
This definition of employee has brought up the third type of employment agency--the leasing employment agency. This type of agency deals with professionals, often computer or other specialties, who are brought in for a long-term project. The employee has a contract with the employment agency and is leased on a long-term contract to the company needing the services. The contract can be extended and there are penalties for early withdrawal from the contract or for any permanent hiring of the employee from the agency.
The question is--what is the appropriate classification for this third type of agency? The answer totally depends on the contract between the agency and the contract employee. If there is an employer-employee relationship that is maintained between the employee and the agency, the classification is 47367 - Sales or Service Organizations. If there is no employer-employee relationship maintained, then code 43200 Employment Agencies is appropriate.
The key to appropriate classification in this case is defined in the contracts. The classification will impact the pricing, especially since one is based on area and one is based on payroll. In addition, one will include Personal and Advertising Injury and one will not.
The answer isn't always as clear as we would like it to be, and there is no simple solution to this particular classification dilemma. Each contract agency will define the type of classification it will need. It really comes down to "It's the contract, stupid"--and isn't that always the case? *