2016 Outlook: Disability and Absence Management
The disability and absence management landscape continues to experience rapid change. The driving forces are legal and regulatory and a shift in social attitudes about work-life balance. It can be a challenge to keep up; however, there is also great opportunity for disability and absence management professionals to expand their skills and increase their value.
Here are five trends to watch for in 2016:
Paid Leave: A True National Issue
If paid family and sick leave were issues in 2015, they will be the issues of 2016. More large employers will follow the likes of Netflix, Facebook, Microsoft, Adobe, Apple, Amazon, and other leading companies to implement or expand their own leave policies.
And there will be even more efforts to pass paid leave laws in cities and states, including Washington, D.C. and Maryland. Perhaps as important, the democratic presidential nominee will seek to build on FMLA and make paid federal leave a significant campaign issue.
This means more complex process management, heightened compliance demands, and increased public attention to organizations that come under legal or other scrutiny. 2016 is the year in which large numbers of disability and absence management professionals become leave law experts.
ADA Administration Drives Increased Partnering
As with FMLA, more employees than ever are aware of their rights under the ADA. As a result, growing numbers of employers will look to their current short-term disability (STD), long-term disability (LTD) insurance and FMLA partners to help them manage the ADA process.
There are tools and resources, including automated software systems, to help employers manage the accommodation requests and processes associated with ADA. These tools are increasingly cost effective. We will continue to see an increase in partnering to manage growing employee awareness and the accompanying compliance demands.
Workforce Well-Being Moves Front and Center
The Affordable Care Act has given a large and sustained push to preventing illness. This directly impacts the absence and/or disability that accompanies those illnesses.
From gym memberships as a nice employee benefit to workforce well-being, it has moved to a key tool in controlling health care costs. Disability and absence management professionals are being called on to play a larger role in designing and implementing these programs. That will accelerate in 2016.
In addition, an even larger part of workplace well-being will be an emphasis on behavioral health. More disability and absence management professionals, as well as health practitioners, understand the connection between the mind and body in absence, disability, and overall health.
Depression and other mental health issues are increasingly recognized as topics of major concern when it comes to employee well-being. Attention given to these areas brings lower health-related costs, including those related productivity.
Expanded Professional Opportunities
As leave and health care change, absence and disability professionals are confronted with significant new demands. They need to be aware of laws and regulations and new approaches to minimizing health care costs.
In progressive companies, this translates into organization-wide cooperation that enables disability professionals to collaborate with different departments.
This presents professionals with tremendous opportunities to expand their networks, skills, and credentials. 2016 will see at least one new professional designation.
With it and the continued accumulation of new skills, disability and absence management professionals will add more value to their organizations. The result will be a new level of professional and personal rewards.
Increase in Strategic Enforcement From the EEOC
The EEOC’s interest has shifted from individual violations to more systemic workplace discrimination and this includes pregnancy discrimination. Systemic investigations and cases are effective at addressing workplace discrimination issues on a broad scale in an industry, profession, company, or even a specific geographic area.
The EEOC issued guidance making clear that failing to accommodate pregnant employees may expose employers to Americans with Disabilities Act claims based on temporary disabilities caused by pregnancy.
So what does this mean for you in 2016? Employers will need to ensure they are paying attention to policies, practices, and processes for employees taking leave.
Leave has become a political and social issue. It, along with all forms of absence and disability, have caught the attention of many in the “C suite”. That means we will all hear more about these topics in 2016.
ERISA Protections in “Option” Injury Benefit Plans
In the debate over state alternatives to workers’ compensation, the role of federal law in protecting workers’ rights has come into focus. But even those calling themselves workers’ compensation experts have publicly stated they are unfamiliar with an important one, the Employee Retirement Income Security Act of 1974 (ERISA).
Here is a brief primer:
Workers’ compensation systems are governed by state laws. But employers and claim administrators must also comply with certain federal laws, like the ADA, FMLA and OSHA.
Similarly, state lawmakers can specify all requirements for whether and how employers can sponsor an occupational injury benefit plan as an alternative to workers’ compensation. Private employers that sponsor these “option plans” must also comply with the above federal laws, as well as ERISA.
Federal regulation of employee benefit plans first started in 1921 and continued into the 1940s and 1950s as Congress passed the Taft Hartley Act and the Welfare and Pension Plan Disclosure Act.
In the 1960s, there were examples of significant employer defaults in benefit payment obligations and a lack of regulatory enforcement mechanisms to right those wrongs. This laid the groundwork for passage of ERISA in 1974.
ERISA doesn’t require employers to sponsor employee benefit plans. It only applies to plans that are voluntarily sponsored by employers.
Retirement plans, health plans, disability plans, dental, vision, and option plans are all examples of employee benefit plans generally subject to ERISA.
ERISA’s primary function is to provide a well-established system of employee protections.
ERISA does this by imposing disclosure, fiduciary and dispute resolution requirements on employers.
• The disclosure rules require a written plan document articulating definitely determinable benefits available under the plan and the process for obtaining those benefits.
• The fiduciary rules require employers to act in the best interests of employees covered by the plan and make consistent, reasonable and prudent decisions in claims administration.
• The dispute resolution process is administrative in nature in order to keep costs, and the burden of resolving disputes, low for employees. ERISA has a formal claims procedure that requires a full and fair review. Employees are able to pursue a no-cost administrative appeal under ERISA for any benefit denial, and ultimately to seek a review in state or federal court.
• There are civil and criminal penalties available if an employer fails to meet the disclosure or fiduciary requirements. Employees and beneficiaries also have the right to sue any fiduciary of an ERISA plan (for personal liability) in state or federal court, or file a complaint with the U.S. Department of Labor if they believe there has been a breach of fiduciary duty. (Complaints can also be filed with state regulators for employer violation of state option plan requirements.)
In historical context, ERISA was crafted to ensure employee rights and to bolster the ability of employees, regulators and courts to hold employers accountable for their obligations.
7 Questions to Answer before Choosing a Captive Insurance Domicile
Risk managers: Do your due diligence!
It seems as if every state in America, as well as many offshore locations, believes that they can pass captive legislation and declare, “We are open for business!”
In fact, nearly 40 states and dozens of offshore locations have enabling captive insurance legislation to do just that.
With so many choices how do you decide who is experienced enough to support the myriad of fiscal and regulatory requirements needed to ensure the long term success of your captive insurance company?
“There are certainly a lot of choices,” said Mike Meehan, a consultant with Milliman, an actuarial firm based out of Boston, Massachusetts, “but not all domiciles are created equal.”
Among the crowd, there are several long-standing domiciles that offer the legislative, regulatory and infrastructure support that makes captive ownership not only a successful risk management tool but also an efficient entity to manage and operate.
Selecting a domicile depends on many factors, but answering these seven questions will help focus your selection process on the domiciles that best fit your needs.
1. Is the domicile stable, proven and committed to the industry for the long term?
The more economic impact that the captive industry has on the domicile, the more likely it is that captives will receive ongoing regulatory and legislative support. The insurance industry moves very quickly and a domicile needs to be constantly adapting to stay up to date. How long has the domicile been operating and have they been consistent in their activity over the long term?
The number of active captive licenses, amount of gross premium written in a domicile and the tax revenue and fees collected can indicate how important the industry is to the jurisdiction’s bottom line. The strength of the infrastructure and the number of jobs created by the captive industry are also very relevant to a domicile’s commitment.
“It needs to be a win – win situation between the captives and the jurisdiction because if not, the domicile is often not committed for the long term,” said Dan Kusalia, Partner with Crowe Hortwath LLP focused on insurance company tax.
Vermont, for example, has been licensing captives since 1981 and had 589 active captives at the end of 2015, making it the largest domestic domicile and third largest in the world. Its captive insurance companies wrote over $25 billion in gross written premiums. The Vermont State Legislature actively supports an industry that creates significant tax revenue, jobs and tourist activity.
2. Are the domicile’s captives made up of your peer group?
The demographics of a domicile’s captive companies also indicate how well-suited the location may be for a business in a particular industry sector. Making sure that the jurisdiction has experience in the type and form of captive you are looking to establish is critical.
“Be among your peer group. Look around and ask, ‘Who else is like me?’” said Meehan. “Does the jurisdiction have experience licensing and regulating the lines of coverage for other businesses in your industry sector?”
3. Are the regulators experienced and consistent?
It takes captive-specific expertise and broad experience to be an effective regulator.
A domicile with a stable and long-term, top-tier regulator is able to create a regulatory environment that is consistent and predictable. Simply put, quality regulation and longevity matter a lot.
“If domicile regulators are inexperienced, turnaround time will be slower with more hurdles. More experience means it is much easier operating your business, especially as your captive grows over time,” said Kusalia.
For example, over the past 35 years, only three leaders have helmed Vermont’s captive regulatory team. Current Deputy Commissioner David Provost is one of the longest tenured chief regulators and is a 25-year veteran in the captive insurance industry. That experienced and consistent leadership enables the domicile to not only attract quality companies, but also to provide expert guidance on the formation process and keep the daily operations running smoothly.
4. Are there world-class support services available to help manage your captive?
The quality of advisors and managers available to assist you will have a large impact on the success of your captive as well as the ease of managing the ongoing operations.
“Most companies don’t have the expertise to operate an insurance company when you form a captive, so you need to help build them a team,” Jeffrey Kenneson, a Senior Vice President with R&Q Quest Management Services Limited.
Vermont boasts arguably the most stable and experienced captive infrastructure in the world. Many of the leading captive management companies have their headquarters for their Global, North America and U.S. operations based in Vermont. Experienced options for captive managers, accountants, auditors, actuaries, bankers, lawyers, and investment professionals are abundant in Vermont.
5. Can the domicile both efficiently license and provide on-going support to your captive as it grows to cover new lines of coverage and risks?
Licensing a new captive is just the beginning. Find out how long it takes for the application to get approved and how long it takes for an approval of a plan change of your captive’s operations.
A company’s risks will inevitably change over time. The captive will need to make plan changes which can include adding new lines of business. The speed with which your domicile’s regulatory branch reviews and approves these plan changes can make a critical difference in your captive’s growth and success.
The size of a captive division’s staff plays a big role in its speed and efficiency. Complex feasibility studies and actuarial analyses required for an application can take a lot of expertise and resources. A larger regulatory team will handle those examinations more efficiently. A 35-person staff like Vermont’s, for example, typically licenses a completed application within 30 days and reviews plan changes in a matter of days.
6. What are the real costs to establishing and managing your captive?
It is important to factor in travel costs, the local costs of service providers, operating fees, and examination fees. Some states that do not impose a premium tax make up for it in high exam fees, which captives must be prepared for. Though Vermont does charge a premium tax, its examination fees are considered some of the least expensive options in the marketplace.
It is also important to consider the ease and professionalism of doing business with a domicile in the ongoing operations of your captive insurance company.
“The cost of doing business in a domicile goes far beyond simply the fixed cost required. If you can’t efficiently operate due to slow turn-around time or added obstacles, chances are you have made the wrong choice,” said Kenneson.
7. What is the domicile’s reputation?
Make sure to ask around and see what industry experts with experience in multiple domiciles have to say about the jurisdiction. Make sure the domicile isn’t known for only licensing certain types of captives that don’t fit your profile. Will it matter to your board of directors if your local newspaper decides to print a story announcing your new insurance subsidiary licensed in some far away location?
Are companies leaving the jurisdiction in high numbers and if so, why? Is the domicile actively licensing redomestications — when an existing captive moves from one domicile to another? This type of movement can often be a positive indicator to trends in a domicile. If companies of a particular size or sector are consistently moving to one state, it may indicate that the domicile has expertise particularly suited to that sector.
Redomestications made up 11 of the 33 new captives in Vermont in 2015. This trend is a positive one as it speaks to the strength of Vermont. It reinforces why Vermont is known throughout the world as the ‘Gold Standard’ of domiciles.
Asking the right questions and choosing a domicile that meets your needs both today and for the long term is vital to your overall success. As a risk manager you do not want surprises or headaches because you did not ask the right questions. Do the due diligence today so that you can ensure your peace of mind by choosing the right domicile to meet your needs.
For more information about the State of Vermont’s Captive Insurance, visit their website: VermontCaptive.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with the State of Vermont. The editorial staff of Risk & Insurance had no role in its preparation.