What are the Benefits to my Client of Offering a High Hazard Alternative to Qualified Risks?

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1 Ninety Percent of Commercial Brokers are Still Clueless and that s a Good Thing Assuming you re a go getter and you are willing to work outside your comfort zone, you could dramatically exploit the employer services market. And your timing could not be more perfect. Over the past three to four years the acceptance by the business community to enter into inclusive service arrangements has picked up pace as evidenced by how fast companies such as ADP, Paychex, Trinet, Insperity, Oasis, and others like them have grown in the inclusive workers compensation & HR (Pay as You Go) industry. Their rapid success continues to hurt the average commercial retail broker on a daily basis. Page 1 However, that trend can be your friend. Yet so many commercial brokers don t dive in. The biggest obstacle I hear from retail brokers is the fear of learning something new. The truth of the matter is that this fear is overstated. No one is asking brokers to become overnight experts. In fact, commercial brokers are poised to take full advantage of this growing trend. Of course as novice brokers start to work these types of transactions their experience will bread knowledge, awareness, confidence, and greater success. Proposed simple broker action plan: 1. Research high ex-mod accounts on Compline or WCIRB 2. Conduct your approach with a twist specializing in alternative programs for high ex-mod accounts in moderate to high hazard industries with certain attributes and in some situations we re able to lower hard dollar costs of premiums, reduce out of pocket renewal costs, and offer more valuable services tied in such as aggressive claims management & loss control. 3. Conduct approach with similarities we will also take a look at standard markets and leave no stone un-turned. 4. Remit risk submission to Alternative Risk and we will underwrite and place at our 5 key markets. 5. Remit to standard markets. 6. Evaluate quote offers 7. Present quotes If the alternative market is a clear winner or is the quote selected to present a business development expert from the program is available via conference call to present the quote, the service and next steps. Once commercial brokers are comfortable with presentations, they can present quotes on their own if they desire. In the event the alternative market is selected by the client, the broker is supported by the service provider in getting his/her client set up and started. What are the Benefits to my Client of Offering a High Hazard Alternative to Qualified Risks? The primary objective of our moderate to high hazard alternative workers comp program is to: 1. Provide highly rated coverage along with valuable employer services such as loss control, HR & Legal support, aggressive claims management, back to work programs, and payroll & tax services at a price 5-20% lower or on par with the cost of a stand-alone workers comp policy issued by the State Comp Fund, or assigned risk pool carriers. a. The (A- to A+) rated carriers used in our program have familiar names and also offer stand-alone coverage. However, through our programs, the coverage is offered at a substantial discount. And even if you have sent your risk to the standard market using the same carrier as one of our programs, do not worry. It s not blocked. More than likely we can still help you. Enabling you perhaps another shot a prospect if the standard markets have been blocked.

2 b. Our objective is NOT to compete against standard markets for clean (desired) credit ex-mod accounts. If your account has offers from more than 2 or 3 standard markets, our program may not be for your client. Repeat we do not want to underwrite credit ex-mod accounts. 2. While providing, in most instances, a significant out of pocket renewal savings ranging from 30 to 80% or greater. Thus preserving vital capital for your prospective client. 3. And to provide a high value Option that your prospective client may find valuable and that will differentiate you from the competition enabling you to build a wedge between your prospect and other competing brokers. 4. And if the client is multi-state often times we can cover all the states with (1) program making it easy for your insured thus expanding your capabilities to source more complex solutions for a niche group of prospects. Page 2 What does a High Hazard Risk Qualified for Our Program Look Like? As a reminder, the underwriting attributes of the desirable opportunities (risks) best suited for our unique programs in order to provide the greatest savings advantage possess the following qualities: 1. Expected renewal premiums in excess of $70,000 a. Ideal accounts have over $350,000 in wages and 15 or more employees 2. Governing class code(s) with base rates of $10.00 per $100 in payroll or greater before applying the Ex-Mod factor (target codes provided a. Ideal accounts should not have more than 30-35% of its wages allocated to low rate codes such as clerical and sales codes b. And, ideal accounts should not use more than 30-40% part-time labor c. Moreover, ideal accounts have employees with the high rate class codes earning a median annual wage close to if not over $26,000 per year 3. And have a debit Ex-Mod factor of 1.25 to 200 for moderate high mod accounts and 200 to 350 for high Ex-Mod accounts What Type of Hard Dollar Savings are we Seriously Looking At? Typically savings may range from 5 to 20% compared to the standard market for risks that have the attributes we have identified. And that is not taking into account the costs saved associated with terminating payroll & HR/legal. Loss Control related companies (typically equal to 1 to 4% of gross payroll depending on the size of the company); hence when administrative savings are factored into the equation those apple to apple comparison s may rise to 10 to 25% or greater. While some of our programs offer a solution with no claim fee deductible, other viable cost effective programs do include those in their proposals. The purpose of the deductible is to help bring into light the need for the insured to implement loss control measures. Secondly, it also helps to reduce pricing and rates. Hence, successful implementation of loss control measure by the insured may lead to lower claim size and frequency thus leading to a decreased claim count. When this happens, the client most often retains the lion share of their savings. Some programs offer claim fees versus a safety rebate in order to provide those savings on the front end and in order to provide an initial lower cost where the savings is immediate and not evaluated after the policy year and credited 3 to 6 months afterwards so as long as the program is still active.

3 Do Insured s really entertain these Inclusive Services? Often when pricing is released the client has to make a decision. Are the savings (if any) and services offered worth shifting from a stand-alone workers compensation policy and ale carte employee administrative program to an inclusive program? Win Results: Page 3 1. Usually if savings is 10 percent or greater not including administrative costs savings; slightly more than 50% or half of the insured s will make the change to an inclusive offering especially when the renewal costs are 30 to 80% less 2. When the price is on par or under 10 percent in hard dollar savings, the ratio of insured s willing to make the change drops to maybe 1 in 4 (25%). a. However, we find that insured s that place a higher value in inclusive employer services programs have a higher success ratio in account placement. In fact they may even make the change if the cost difference is nil (zero) and or if the program costs 1 to 3% more because of their perception of the program s benefits is very positive. We understand that the majority of both brokers and clients prefer stand-alone services and programs. The perception is that it s easier to manage and to understand. And perhaps that is the reality. With that said, make no mistake the alternative programs are on the rise and the acceptance of those programs by insured s is growing at a pace faster than most brokers would like to believe. One of our core programs launched in 2011 in California and most recently beyond California has already grown in new business by over $150,000,000 in workers compensation premiums and if you factor in the administrative fees that are often calculated as premiums (in the eyes of both brokers and clients) that number rises to $176,000,000. This entire block of premium was derived away from standalone policy solutions and into just (1) of our inclusive services programs in less than 36 months. 900 accounts ranging from $70,000 to over $1M in renewal premiums converted. The median renewal premium per account was roughly $195,000. So these are not small potatoes. The biggest kicker is that 85% of these new accounts were brought to the program by non-incumbent agents! Looking for an idea to win new business? Here is one. And these numbers only represent 1 of the 5 programs we work with. Why Would I want to Work with Alternative Risk Marketing? One (1) of the 5 programs we work with is something we have more exclusivity with. The other 4 programs have several access points. However the differentiating factor between going to directly to one of the markets (if permitted) and working with one of their sales representatives or through another access point working with their sales rep is that we work directly with a senior Vice President or executive Vice President of Sales and or Marketing to secure our quotes. We are often afforded higher credits (lower pricing) and higher commissions because of our high level connections. Hence, we re able to act as your personal alternative market back office while offering compensation comparable if not higher than going direct. Another feature about working with us, we do not prohibit communications between the program managers and our agency partners like you. In fact we encourage it. Our goal is collaboration and partnership. We don t keep you a secret from our markets. And this helps everyone become more comfortable with the entire process.

4 Commissions Commissions are competitive and on par with the standard markets. Typically equal 8 to 10% of workers compensation premiums and varies by risk and program Calculation of commissions varies by market. Two of our markets pay based on Workers Comp premiums while three pay based on a percentage of gross annual payroll. Page 4 What Industries do Your Programs Excel at? Target Classes of Business for PEO Quotes Code Building & Management Code Waste Management 8740 Apt/Condo property mgmt. sup Sanitary/Sanitation Districts 9007 Apt/Condo Operation seniors 8264 Paper Stock / Bottle / Rubber Stock Dealers 9008 Janitorial Services 8265 Iron & Steel Scrap / Junk Dealers 9009 Building Operation commercial 8500 Metal Scrap Dealers 9010 Mobile Home Park Operation 8847 Beverage Container Collection 9011 Apt/Condo Operation 9402 Sewer/Tank Cleaning 9015 Building Operation N.O.C Garbage Collection / Street Sweeping 9066 Homeowners Associations 9424 Garbage Dump Operations 9096 Residential Cleaning Services 9426 Sanitary Companies 9097 Swimming Pool Cleaning / Svc Code Contracting/ Code 3724 Millwright Work 5027/5028 Masonry 5102 Iron/Steel non-structural 5140/5190 Electrical 5107 Door/Pre-Glazed Window Install 5183/5187 Plumbing 5146 Cabinet/Fixtures Installation 5185/5186 Automatic Sprinkler 5191 Office Machine Install/Repair 5201/5205 Concrete/Cement Work 5192 Vending/Coin-Op Machines 5403/5432 Carpentry 5195 Communications Cabling 5446/5447 Wall boarding 5213 Concrete Construction 5467/5470 Glaziers 5348 Tile/Stone/Mosaic/Terrazzo 5474/5482 Painting 5436 Hardwood Floor Laying 5484/5485 Plaster/Stucco Work 5443 Lathing 5538/5542 Sheet Metal Work 5479 Insulation Work 6218/6220 Excavation 5606 Contractors exec. Supervisors 6400 Fence Construction 7605 Burglar Alarm Installation 8227 Construction/Erection Perm. Yds Code Transportation Code Misc Parcel Delivery Companies 8018 Stores - Wholesale 7219 Trucking Firms 9008 Janitorial 7232 Mail Delivery Service MISC Staffing 7272 Water Truck Service Companies 8810 Clerical (no as governing class code) 7360 Freight Handlers 8742 Sales (not as governing class code) 7382 Bus/Limousine Operations 8827 Homemaker 7392 Beer/Ale Dealers 8290 Warehouses self-storage 8291 Warehouses cold-storage 8292 Warehouses general-merchandise 8293 Warehouses furniture 8350 Gasoline/Oil Dealers

5 Also considered under certain situations Unarmed guards Transportation including busing, parcel, movers, taxi, trucking, towing over $100,000 in premiums Non-Emergency Ambulance Services Cancelled / Uninsured with current gap in coverage Asbestos and Mold over $100,000 in premiums (limited by states available) Staffing with over $1,000,000 in wages (limited by states available) Agriculture with No seasonal labor Tree Trimming Multi State operations Fast Food operations Window Washers Page 5 Excluded Types of Risks Roofing USL&H Municipalities Emergency Ambulance Services Police & Armed Guards Blasting Operations Ammunition manufacturing Sports teams Risks with heavy seasonality (more than 25%) Risks with more than 40% use of Part-time labor Risks with more than 35-40% of gross wages in low rate class codes such as clerical & sales What do You Need to Submit a Risk for Review? No Pre-appointment Required Acord 130 (FEIN, Premium and Carrier History) 5 Years of currently valued loss runs within (60) days ALL STATES Ex-Mod Factor /Work Sheet Target Premiums / Expiring Premiums Let us know what alternative markets you knowingly sent the risk to Workers Compensation Insurance Supplemental Application (most any will do) days lead time preferred How long does it take to secure a Quote? Turn-around time for our core or primary program is 3 to 5 days. The remaining programs may take 7 to 15 business days. Desired lead time: 45 to 60 days.

6 High Experience Modifier States Up to 350 The states listed below are High Ex-Mod states. Our core or primary program can entertain risks with experience modifiers up to 350. If the state where your account is located is not listed, then the maximum experience modifier our secondary markets will entertain is 225. Page 6 High Ex-Mod States up to 350: AL, AZ, CA, CO, FL, GA, IL, LA, MD, MS, NC, NJ, NM, NV, OK, PA, TN and TX Moderate Ex-Mod States up to 225: All other states including New York How long does it take to set up a new client? We can accept submissions at any time on or before the policy effective date on behalf of our primary program. However, in order to maintain the client s existing anniversary date, the quote must be released prior to the policy effective date. Coverage will not be bound and in force until the client has signed, completed, and returned back to the service provider ALL client service agreement paperwork and new hire employee packets in addition to any monies required such as policy & broker fees and applicable collateral. Should timing extend beyond the policy effective date, once the set up is complete the policy will be issued showing the desired policy effective date and coverage will be bound. Typically, client set up may take 3 to 5 business days. This may vary depending on the size of the company. With our secondary markets, they require 30 to 60 days advanced notice before policy effective date in order to underwrite and release a rate indication. Decisions for coverage with these markets are required 7 to 10 business days before the policy effective date in order to provide the desired policy effective date. Rate quote turn-around general takes 5 to 10 business days and is typically stricter in its methodology. Highlights and Key Features of the AltRisk PEO Programs Pay As you Go Workers Compensation at reduced costs! No Premium Deposits / Out of Pocket Costs at Renewal 30 to 80% Less than Standard Markets Most Coverage is provided A Rated Carriers No Annual Premium Audit Streamlined Cash Flow Advantages Loss Control and Risk Management Expert and Fair Claims Management HR Services -support: Unemployment Claims Administration, Garnishments, Cobra etc Full Payroll service including full tax remittance and compliance, 941 s, W-2 s Very little if any customer service for your Agency Very high retention product continuous until cancelled What is a Professional Employer Organization? Professional Employer Organizations (PEO) enter into a co-employer relationship with clients, which allows them to share and manage many employer-related liabilities and responsibilities. Clients outsource their human resources to the PEO and maintain control of their companies, while the PEO provides human resources services, employee benefits, payroll administration and workers' compensation.

7 A PEO gives your clients a complete Human Resource solution that lets them, as business owners, limit their liability. PEO s provide business owners with a team of professionals that provide their employees with the benefits they expect from a top rated company. Small and large businesses are seeing how they can benefit from working with a Professional Employer Organization: Eliminate high premium deposits and audits Remove tedious HR tasks and focus on obey making facets of the company Save money by outsourcing their HR, employee benefits, and payroll Get the reassurance that their company is always under compliance with professional HR management Reduce risks by having proper employment practices Attract quality employees by having top notch benefits. Page 7 What is co-employment? Co-employment is the contractual arrangement between the client and the PEO that allows the PEO to provide a full range of services and to transfer or share many employer liabilities. Each party is responsible for certain employment obligations, and each party shares responsibility for other employment obligations. Workers become employees of two employers: the client retains supervision for production or delivery of service and the PEO assumes responsibility for human resources and personnel services. Personalized Solutions When an account is looking into a possible PEO solution, an easy mistake being made is to throw a quote out there to see if the customer likes it. That is a waste of time for all concerned. Unlike standalone policies where one size does fit all and the policies are mainly the same, the main features of our PEO products is that we can tailor make a program individualized for the account by adding and moving component features and parts around that together work to fit make a whole. Examples of some of these features are: special deductible plans, (according to the clients individual risk appetite) return of premium plans dividend plans and discounts credits for implementation of the service providers Loss Control procedures Additionally, when it comes to payroll administration, one size definitely does not fit all! Every company s payroll needs differ. Examples of need include: Job Costing Software The ability to Run P & L and balance sheet reports Accounting software interface Multiple office report configuration DOT Compliance As well there are different ways that payroll can be delivered, of which some are, overnight checks mailed to client direct deposit into client s accounts money loaded onto employees bank check-cards, client writes net checks in house off of the service providers account,

8 client write checks out of their own account (subject to approval) All of these factors and preferences are considered in assessing the clients operations and needs and to design a customized solution, program and pricing for your client. Eligibility and Target Market for PEO Quotes Our PEO Target Market account is defined as: Page 8 Accounts that have a strong and urgent necessity to get out of a State Workers Compensation Insurance Company or Fund a state assign risk pool or insurer of last resort Accounts that have been non-renewed or cancelled by the standard market due to exposure or losses and/or are headed to a State Insurance Fund, assign risk pool or insurer of last resort and have X-Mods between 1.3 and 3.0 accounts that have a credit mod but being Non-Renewed by current carrier due to heavy losses the prior year and do not wish to go to a state insurer or insurer of last resort lapse in coverage with adverse loss experience accounts with No Prior coverage, but tough class, interstate exposure, adverse underwriting criteria any combination of the above that makes the account impossible or unlikely for the standard market to handle Accounts with governing class codes with manual rates of $8 to $50 or greater with a high X mod 1.30 in conjunction with 1 more of the above criteria tough classes with some or all of the above criteria All submissions must fit in one or more of the above categories to be considered for underwriting for PEO. If the account is not in one or more of above the categories, it cannot be quoted by our PEO division. Not Eligible for PEO Quotes Accounts that are NOT to be submitted to quote to our PEO division policy holders that are not in one or more of the above Eligibility for PEO Quotes section policy holders that have offers from the standard market Policy holders that are just shopping to see if they can get a better rate Accounts with low loss picks and/or credit X-mods