Preventing Unpleasant Insurance Renewal Surprises Using a PEO Solution

Insurance brokers

Preventing Unpleasant Insurance Renewal Surprises Using a PEO

All business owners can agree and acknowledge that surprises are not always a good thing when they happen.  I mean, aside from the unexpected batch of your favorite cupcakes for your birthday at the office or getting a notification for a 5-star Yelp review, business owner surprises aren’t exactly a cakewalk per se.  Insurance renewals are one of those surprises that hit you in the ribs when you find out how much more or less you will be paying out of pocket for coverages. We can all agree that when your insurance agent or vendor says they have a “surprise” for you, it’s normal to be nervous.

Birthday cupcake

However, according to Patrick Moraites, a partner and vice president for Tampa-based Axis Group, many business owners are likely to be in for some not-so-pleasant news when it comes time for them to renew their workers’ compensation premiums and general business insurance premiums.

“Premium renewals are all based on payroll so looking back, 2021’s premiums would have been based on 2020’s payroll,” Moraites said. “With so many businesses being shut down in 2020, payrolls were down. Therefore, renewals and the amount of premium due in 2021 were also going to be down because they were based on last year’s performance.”

While some of the fallout from the pandemic has still lingered around through 2021, many companies have recovered – at least somewhat – from the darkest days of 2020 which has given business owners some hope as 2022 begins. It’s a good thing that businesses are getting back on track because they may now be finding themselves in a financial situation they never could have imagined even in the early days of the pandemic.

Moraites breaks it down like this:

“Imagine you own a company that usually generates $50,000 in annual premiums. Then just because things returned to the new “normal” in 2021, you ended up doubling your payroll so now you have $100,000 in premium.”

Moraites continues… “Well, due to the fact you only paid your insurance company $50,000 in premium, you now discover you owe them $50,000 in what the insurer calls “back premium.”… In addition, the insurance company is now billing you for the insurance premium you technically used but didn’t pay for in full AND in return the insurance company is going to collect a deposit on the new premium dollar amount. So, the next question arises: What’s that new premium going to be based on? You guessed it correctly – last year’s performance!”

To explain the scenario in more detail Patrick Moraites breaks down the numbers even further:

“So, let’s say they’re going to take a 10 percent deposit on the $100,000 premium,” Moraites said. “That means you’re putting up $10,000 as a deposit for this year, plus that other additional $50,000 you already owed for back premium. Now all of the sudden you’re going to have to come up with $60,000 out of pocket for insurance.”

Companies that have not been preparing for this type of situation may end up in a serious cash flow bind that could put a damper on their pocket. However, there are many companies that opted to hire a PEO, also known as a Professional Employer Organization, who won’t be in for such an unpleasant surprise, and here’s why:

“With a PEO, there’s not going to be a deposit on premium, Moraites said. “You’re paying for the workers’ compensation per each payroll cycle in real-time, so that way you never have an audit. Plus, you won’t put yourself in the position of having a back premium bill from an insurance carrier due to the PEO taking on some of that risk. By going with a PEO solution, you’re taking the best route to steady your cash flow, and now more than ever, that’s a really good thing as uncertainty grows from an economic & pandemic standpoint.”

Wondering how a PEO can help you with your bottom line? Let the team of experts at Axis Group help. To schedule a consultation, click here.

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