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New Insurance Company to Target Staffing Firms

July 29, 2008
American Staffing Assurance Co. has entered a risk-sharing agreement with Hartford, Connecticut-based Sparta Insurance Co. and raised $4 million from private investors, enabling it to begin selling workers’ compensation and other insurance to staffing firms nationwide.

American Staffing, based in Grosse Pointe Park, Michigan, is offering the insurance, underwritten by Sparta, through its newly licensed affiliate, American Staffing Assurance Co. of Washington, D.C.

“Assuming all goes well, we will accept more investment dollars,” said president James Farber, one of 11 investors in the deal and founder of Executive Strategies Inc. in Grosse Pointe Park, which will serve as program administrator.

Five years from now, American Staffing hopes to have raised $250 million to fund the acquisition and operation of a shell insurance company licensed in all states, he said.

“[But] at this time, the greatest return on investment is generated by partnering with Sparta,” said Farber.

American Staffing needed $4 million to support its projected writings for the first two years of the program, he said.

Historically, the staffing industry has been a loser for the insurance industry, Farber said. Staffing firms send their employees into several different work environments on the same day, which makes it more difficult to quantify, manage and accurately price the risk associated with potential claims.

“Unless you have someone who specializes in staffing, [an insurance company] runs the high likelihood that it will not be successful” offering insurance to those firms, Farber said.

American Staffing believes it can save staffing firms money by lowering their long-term claims costs while funding its own expansion, he said.

Farber said that in 1997 as manager of corporate development at Bosquette & Co. in Detroit, he developed a national program to offer similar insurance to smaller, technical staffing firms through Kemper Insurance Co.

But when Kemper’s rating dropped around 2001 because of financial troubles, he ended his relationship with Kemper and decided to look into offering the coverage through other means.

Sparta looks for program administrators who have expertise in their class of business, and Farber demonstrated that, said chief marketing officer Brian First.

Under the one-year agreement between the two companies, Sparta works with American Staffing to select staffing firms with favorable claims histories.

Through the Sparta policy, American Staffing will offer workers’ compensation, property, general liability, auto liability and physical-damage coverage to companies with revenue up to about $100 million, Farber said.

It plans to take on the majority of risk, he said.

Filed by Sherri Begin of Crain’s Detroit Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.