I See Smoke on Mount BBSI

Barrett Business Systems (BBSI) has recently admitted to under-reserving their workers comp losses to 62% of their value through 2012. This caused them to have to start infusing $80 million in capital to shore up old loss reserves. Unfortunately the PEO type self insured program only lists $52 million in cash and cash equivalents at this time.

This all comes at a time when BBSI is in the midst of rolling clients over into an ACE Insurance “fronted” program so that they could continue operating after 1/1/15, as the California WCIRB has banned Self Insured programs that do staffing, or any type of Labor Contracting effective that date.

In the case insolvency occurs (which I believe will happen), employers that did business with Barrett, pre 2012, could find themselves on the hook for unpaid losses. The Self Insurers’ Security Fund is pursuing litigation against Mainstay Business Solutions and its former employer clients following the failure of that PEO.

PEO’s of this nature are nothing more than Self Insured groups with bundled service products attached (Payroll, HR, Compliance, etc.). They have the ability to write class codes that only the State Fund will touch and they set WC pricing to offset the costs of the other services.

What your average consumer of these products usually does not know, is that the up front savings are usually lost in various fees that are not apparent to that consumer at the time of purchase, or they will be forced to give it all back later through the Office of Self Insured Plans (OSIP) Lawsuits a few years later.

This could be a very big issue for those participating in BBSI programs up until 2012. It certainly will get the attention of the lawyers at OSIP, and it has already received the attention of investors law firm of Hagens Berman Sobol Shapiro LLP who immediately filed a lawsuit against BBSI for failing to disclose its unacrued losses in workers compensation.

Please contact me with any questions regarding this event.