New Guidelines Published on Classifying Independent Contractors

Recently, the ability for businesses to properly classify employees has been a top priority for the U.S. Department of Labor (DOL). This has become even more of a pressing issue as changes in the economy and the COVID-19 pandemic have significantly propelled the growth in the number of gig economy workers. Businesses often use independent contractors because they can hire them for certain jobs or special projects without incurring the typical expenses associated with hiring full-time company employees. Simply put, the business gets the work it needs done without having to pay for things such as training, overtime and sick pay, workers’ compensation insurance and other benefits typically afforded full-time employees.

But within the past few years, issues have come about as to whether a worker is actually acting in the capacity of an independent contractor or in more of an employee role in which he or she would be entitled to workplace benefits. As a result, the DOL developed guidelines and tests for states to use under the Fair Labor Standards Act (FLSA) rule to assist businesses in making this determination. One such bill that gained nationwide attention in 2020 was California’s Assembly Bill 5 (AB5), also known as the gig worker bill. AB5 required companies that hire independent contractors to reclassify them as employees. However, after much controversy regarding AB5 and after several lawsuits were filed, the California legislature in September 2020 passed a revised bill that goes on to include a long list of job categories that are to be specifically excluded from AB5.

What’s new for 2021

Just a few weeks ago, the DOL further relaxed its interpretation of the FLSA’s classification provision.  On January 7, the DOL issued a new and final version of the FLSA rule that serves as a guide for employers to distinguish independent contractors from employees. As outlined by the DOL, the final rule reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA-defined employee).

The rule, set to go into effect on March 8, explains how states are to use the economic reality test for classifying a worker as an independent contractor. The test lists the following five factors that businesses must consider:

1. The nature and degree of the individual’s control over the work.

2. The opportunity for profit or loss based on initiative, investment or both.

3. The amount of skill required to do the job.

4. The degree of permanence of the working relationship between the employer and worker.

5. Whether the work is part of an integrated unit of production.

To help businesses with the determination, the final rule presents six fact-specific examples for applying the five factors.

Conclusion

Although the final rule is set to go into effect on March 8, employers should stay updated on any subsequent changes or adjustments to the rule that may occur over the next 12 months and because certain state and local laws regarding the issue may still apply. It should also be noted that guidelines and laws can differ widely from state to state, so employers should understand what is applicable to where they do business. Your business clients can read more about the changes in the final rule and in the classification of independent contractor status by visiting the Federal Register archives and reading the January 6 U.S. Department of Labor press release.

Resolve to get your continuing education credits done early this year. At FastrackCE, we make completing your continuing education credits fast and easy, and at a time when it’s convenient for you. We offer online courses in most states covering a broad range of topics, including most of the state-mandated courses such as ethics, flood, long-term care and annuity training. For more information, call 800-544-3605 or visit us at fastrackce.com.

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The Top 5 Trends in Insurance for 2021

COVID-19 and the resulting hard market have significantly impacted the insurance industry. As 2021 fast approaches, brokers and their policyholders will continue to face myriad new and lingering challenges that will continue in the new year. Here’s what you need to know: 

  • Cybersecurity risks will increase. With the vast majority of employees working remotely and more data and applications moving outside the traditional security perimeter, it is predicted that cyberattacks will keep rising. According to Bridewell Consulting and reported on TechHQ, cybersecurity in 2021 will be even more challenging, as the attack surface is now bigger, and most measures to implement and control security and data policies may lack the capabilities to protect a widening remote environment.

Take note! Now’s a great time to approach your clients with a cybersecurity insurance policy.

  • Hard market conditions will continue. Reports show that due to COVID-19, the industry experienced a nearly $80 billion loss. Next year, insurers and insureds should expect a carryover of hard market conditions into 2021 with even steeper rate increases, stricter underwriting, fewer markets and more limits imposed on coverage.

Take note! Review policies well in advance of renewals to give yourself plenty of time to shop the market and present the best coverages and rates to policyholders.

  • Professional liability claims will become more common. Due to COVID-19, company managers will face a growing list of challenges related to pandemic-induced litigation. Compounded by the second wave of shutdowns, issues include challenges regarding compliance with state and federal laws/regulations and employee layoffs and furloughs — to name just a few. As a result, “mega” claims have increased and will become more prevalent in the new year.

Take note! Take the time to discuss with business clients the critical financial and reputational protection that professional liability coverage such as directors and officers provides. 

  • The number of gig economy workers will grow. Many businesses are using independent contractors and freelancers instead of full-time employees. The pandemic has been a definite catalyst in growing the ever-expanding army of gig economy workers. But this shift in the nation’s workforce also means a shift in risk-mitigation efforts. For example, gig workers are generally not covered under the hiring company’s insurance (e.g., health, disability, liability). In addition, gig workers seeking coverage may not be aware that the type of risks they could be exposed to aren’t typically covered under a standard commercial or personal lines insurance policy, which could leave them unprotected. This presents specific market opportunities within your book of business for providing coverage for gig economy workers who may need liability, health, life, disability and other types of ancillary insurance.

Take note! State laws and regulations that define what classifies gig economy workers as independent contractors will differ from state to state – even if workers are not considered employees under federal law. Be sure to educate your clients on the importance of knowing the specific laws and regulations in their respective states.

  • Climate-related risks increase. According to the website Law360, climate change sits at the top of the insurance industry’s list of concerns for 2021. From wildfires to floods and everything in between, the industry will experience emerging changes in insurance regulatory initiatives and developments regarding climate change-related risks. In fact, the National Association of Insurance Commissioners has established a new Climate Change and Resiliency Task Force for 2021, along with a number of key initiatives that will consider policy and coverage recommendations for addressing pre-disaster mitigation, stress-testing scenarios and new insurance products — to name a few. 

Take note! According to Deloitte, finding a balance between ensuring affordability and availability and managing financial stability may get tougher in the new year as extreme weather conditions escalate. Be prepared to proactively work with your insureds to help them understand these shifts and to find the best coverage at an affordable price.

It’s time to put 2020 behind us and look forward to what’s ahead. By staying informed on industry trends, you can better run your insurance agency and better serve your clients.

Pressed to complete your insurance continuing education credits before the end of the year? Let FastrackCE help you get all the credits you need at a time that’s convenient for you. We offer online courses in most states, covering a broad range of topics, including most of the state-mandated courses such as ethics, flood, long-term care and annuity training. For more information, call 800-544-3605 or visit us at fastrackce.com.

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3 Tips for Selling in a Hard Insurance Market

A hard insurance market is when there is a higher than normal demand for coverage but a reduced capacity for most types of insurance lines. As a result of a hard market, premiums are typically higher, and carriers are less likely to be flexible with policy limits and terms. So, with insurance professionals staring down the barrel of having to justify higher premiums to policyholders and fewer carriers in which to market accounts, is there a better way to approach selling in a hard market? While there are no guarantees, the following three tips may help you be more proactive in your selling efforts.

  • Get your renewals in earlier than normal. Renewals are the lifeblood of your insurance agency. In a hard market, it’s in your clients’ and your best interests to get renewals in 90 to 120 days before the expiration date. Not only does this allow you to block the market, but it also provides the extra time needed for you to approach multiple markets in the event an underwriter or carrier decides not to renew an account. For underwriters, this extra time may be needed in order to schedule an inspection company to physically review a risk and verify specific account information, such as the condition of an older home’s roof, the correct distance to a fire hydrant or fire station, or the heating, ventilation and air conditioning system of a restaurant or manufacturing operation.
  • Proactively communicate with your clients. To say that policyholders won’t be happy about a premium increase is an understatement. This is especially true for accounts that have not filed any claim losses during their policy period. In a hard market where rates and restrictions are destined to increase and limits will likely be lower, it’s important to be proactive and schedule a policy review with your clients sooner rather than later. Start by alerting clients that there will likely be an increase and as their agent, you are looking for ways to help them offset some of the expense. For example, can you apply any policy discounts? Are there claim losses that will be over the five-year mark come their next expiration date? Have there been new safety protocols implemented since the last renewal? It’ll take work, but just going through the process of keeping your clients informed can demonstrate your commitment that will hopefully keep them around for the long term.
  • Know that underwriters will require more time. When insurance professionals are heavily marketing renewal accounts and trying to put more new business on the books, underwriters and carriers will be at or near capacity levels. As a result, don’t expect a quick turnaround time on the release of renewal premiums or new business quotes. However, you can improve the situation by submitting only full and complete applications, saving a lot of back and forth. For example, if you have an account with a large claim loss, provide underwriters/carriers with the information they need upfront to make an informed decision. In addition to currently valued loss runs, be sure to include a detailed explanation of the loss and the efforts that have since been made to help mitigate future risks. Other account information should include supplemental forms, supporting marketing materials for businesses and a narrative that describes the account in more detail — something that is critical with more complex commercial accounts.

We’ve all had enough bad news this year. But the good news about a hard market is that it won’t last forever. By getting a head start on marketing your accounts, proactively communicating with your clients and working with and not against underwriters and carriers, you’ll be in a better position to weather the storm.

About FastrackCE

Pressed for time to complete your insurance continuing education credits before the end of the year? FastrackCE can help. We offer online courses in most states covering a broad range of topics, including most of the state-mandated courses such as ethics, flood, long-term care and annuity training. For more information, call 800-544-3605 or visit us at fastrackce.com.

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The P&C Marketplace: What Lies Ahead in 2021?

With everything from catastrophic wildfires and floods to a tumultuous election and an unrelenting global pandemic, to say that this year has been tough on the insurance industry would be an understatement. And as we approach the new year, analysts suggest that 2021 might usher in some of the hardest insurance and reinsurance market conditions the industry has experienced in a long time.

COVID-19 and a hard market climate

According to Willis Towers Watson PLC’s 2020 Insurance Marketplace Realities report, COVID-19 has been a key catalyst for intensifying the hard market momentum, resulting in substantial earnings losses for insurers across key business lines. To date, current estimates for insurable losses due to the pandemic could top the $80 billion mark. In addition, issues surrounding uninsurable pandemic-related losses, such as those related to business income, mean the industry will also be grappling with reputational recovery as debates over the interpretation of contract language result in costly lawsuits. Today, the pandemic and economic downturn will likely extend the hard market well into 2021 as insurers’ losses materialize and their investment income declines. However, experts in the WTW report note that the full impact of COVID-19 remains to be seen. 

Multiple business lines being impacted

Property damage losses — due to changes in our climate as well as COVID-19 — has also increased the severity of liability losses in nearly every line of business. This year’s catastrophic losses mean that property insurers are likely to impose steep rate hikes as underwriters meticulously review exposures and pull back on coverage terms. According to WTW, catastrophe-exposed insureds with losses could see 30% or higher rate increases. In commercial liability, loss trends have also negatively impacted profitability with a projected possible increase of 40% in umbrella/excess insurance. On a more positive note, commercial auto rates will likely remain stable in 2021, as will workers’ compensation. In fact, WC rates may fluctuate up or down by only 2%. 

At the start of this year, management liability lines such as directors and officers liability experienced a whopping rate increase of 44% in the first quarter of 2020. According to an A.M. Best Market Segment Report, this rate is likely to jump even higher in 2021 with rising litigation and D&O claims being brought against executives targeted for decisions they made that are related to the pandemic. As an insurance professional, expect underwriters to reassess their risk selection and make adjustments to rates as more class action and event-driven litigation lawsuits are filed.

Insurance brokers with businesses that require pollution policies are also likely to face changes in rates and coverages. According to WTW, some policies will continue to offer coverage for bacteria and/or viruses, but that may only apply to disinfection/cleanup costs as most environmental policies include a bodily injury or human-to-human contact exclusion.

Moving forward

According to the WTW report, the rate increases we are currently experiencing for most lines of business may not go any higher than they already have over the past few months; however, changes in the market and increased rate pressure will continue to build as losses materialize and investment income declines. As an insurance professional, these market changes and challenges mean that you’ll have to work harder to secure new accounts and to retain existing policies. This includes starting the renewal process early and engaging with underwriters and carriers when it comes to policy negotiations to make smart decisions based on risk tolerance and market conditions.


Pressed to complete your insurance continuing education credits before the end of the year? Let FastrackCE help you get all the credits you need at a time that’s convenient for you. We offer online courses in most states covering a broad range of topics, including most of the state-mandated courses such as ethics, flood, long-term care and annuity training. For more information, call 800-544-3605 or visit us at fastrackce.com.

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Voters in Five States Approve Marijuana Ballot Initiatives

Today, 1 in 3 Americans live in a state where some form of marijuana use is legal – whether recreationally or medicinally. Up until Election Day, recreational marijuana was permitted in just 11 states and Washington, D.C., with the total number of states allowing legal medical marijuana use sitting at 33. On November 4, several ballot measures passed to legalize marijuana in five states: Arizona, New Jersey, South Dakota, Montana and Mississippi. This brings the number of states to legalize recreational marijuana up to 15, and the total number of states allowing legal medical marijuana to 35. But despite the passing of ballot measures and change in marijuana laws, cannabis remains a Schedule 1 drug and illegal at the federal level. So what does this mean for each state? Here’s the breakdown.

Arizona had already approved marijuana for medical purposes. But on November 4, the passing of Proposition 207 expanded legislation to permit the recreational and other nonmedical use of marijuana. The legislation charges the Arizona Department of Health Services with licensing and regulating marijuana businesses and imposes a 16% tax on sales. However, local governments are allowed to ban marijuana businesses within their borders. It also lets people with marijuana-related criminal records petition for expungement. According to Vox Media, supporters of the new legalization claim that it eliminates the harms of marijuana prohibition. The new law goes into effect November 30 once the vote tally is officially announced. However, dispensaries will not be able to legally sell recreational marijuana until they get licensed sometime around March 2021.

New Jersey voters passed the Marijuana Legalization Amendment (2020) that legalizes the recreational use of non-hemp cannabis for persons age 21 and over. It also permits possession, cultivation and sales of retail non-hemp cannabis. According to an article in Real Money, the legalization of recreational marijuana in New Jersey could create a wave of legalization in the Northeast, with New York, Connecticut and Pennsylvania. The amendment is scheduled to go into effect on Jan. 21, 2021.

South Dakota became the first state whose voters, in the same election, approved to pass the use of both recreational and medical cannabis. Under the measure, individuals 21 years old and older are allowed to possess or distribute up to one ounce of marijuana. According to the South Dakotans for Better Marijuana Laws, the measure was aimed at reforming South Dakota’s harmful and outdated marijuana policies. The amendment requires the South Dakota State Legislature to pass laws providing for a program for medical marijuana and the sale of hemp by April 1, 2022.

Montana also had two marijuana initiatives up for a vote, 190 and 118. The win of Initiative 190 allowed Montana to become the 15th state to legalize marijuana for recreational use and to impose a 20% tax on recreational cannabis sales. It would also allow people currently serving sentences for certain cannabis-related acts to apply for resentencing or records expungement. Initiative 118 amended Montana’s constitution to establish 21 as the legal age to purchase, possess and consume cannabis. The measure will go into effect on Jan. 1, 2021, and the Montana Department of Revenue must begin to accept applications from growers, processors and retailers by Jan. 1, 2022.

Mississippi voters had a two-part ballot measure this election — Initiatives 65 and 65A — of which 65 passed with a 74% majority. Initiative 65 supports the approval of medical marijuana and allows doctors to prescribe it to patients as a treatment for more than 20 debilitating conditions. Had it passed, Initiative 65A would have supported the approval of the legislature’s alternative medical marijuana amendment, which restricts the use of marijuana except for terminally ill patients, along with other restrictions set by the legislature. Voters were asked to vote in support of either 65 or 65A or neither. Since 65 received the majority approval (40%) of the ballots cast, it passed. Initiative 65 will require a medical marijuana program be in place by August 2021.

Conclusion

According to the National Association of Insurance Commissioners, more than half of U.S. states have legalized some form of medical or recreational marijuana. But because cannabis is considered an illegal substance under the Controlled Substances Act, there will continue to be a division between state and federal status that will challenge businesses as they look to standardize business practices. As an insurance professional, your business clients will be looking to you to provide them with the information they need to make informed decisions about their coverage.

We are nearing the close of a very challenging year. If now’s the time to complete your insurance continuing education credits, let FastrackCE help you get all the credits you need at a time that’s convenient for you. We offer online courses in most states covering a broad range of topics, including most of the state-mandated courses such as ethics, flood, long-term care and annuity training. For more information, call 800-544-3605 or visit us at fastrackce.com.

Other sources used: The Wall Street Journal, CNN Politics.

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