By Frank Huang, Head of P&C Actuarial Solutions.

If you’re leading a growing PEO, you already know the pressure: pricing accurately, managing risk, satisfying auditors, and making strategic decisions with incomplete data. As your organization scales, these challenges don’t just get bigger – they get more complex. And without the right support, they can slow you down or expose you to unnecessary risk. 

Over the years, I’ve had the privilege of walking alongside dozens of PEOs – from startups to national platforms – as they’ve confronted these exact challenges. I’ve seen what works, what doesn’t, and what’s needed at each stage of growth. This guide reflects those lessons and offers a roadmap to build actuarial confidence as your business evolves. 

Stage 1: Just getting started 

In the early days, pricing workers’ compensation coverage often feels like a race against time. You’re trying to win business, respond to brokers, and build momentum. But the data is thin, pricing tools don’t exist yet, with pricing typically resorting to a discount off an existing quote.  

The actuary in me naturally wants you to reflect the actual risk profile on every prospect. But the operator in me knows you need to get deals across the line as profitably as possible. That’s where having the right actuarial pricing model helps bridge the two worlds – giving you something quick, accurate, and defensible without slowing down growth.  

Stage 2: Scaling up 

As your PEO grows and approaches the 5,000 WSE threshold, the dynamics shift. Many PEOs start retaining risk, moving from guaranteed cost policies to small deductible programs. This isn’t a minor step, it introduces financial risk that catch many PEO leaders by surprise. Liabilities start to accumulate, and without a clear view of what’s on the books, especially for a long-tailed line like workers’ compensation, you’re reacting instead of planning ahead.  

I’ve seen more than one PEO move too soon to a large deductible, only to revert back to guaranteed cost when the retained risk turned out to be very different from what they expected. 

At this point, you need a way to be able to estimate both your profitability so you can adjust new and renewal pricing accordingly, but also an auditor-approved actuarial estimate of balance sheet liabilities. An actuarial reserving analysis allows you to do both. And if properly communicated and understood, the framework can help turn retained risk into something manageable, predictable, and aligned with your growth strategy. 

And if you pair it with an accrual model,  you simplify what your finance and accounting team must accrue on a monthly basis. This model leverages many of the assumptions and observations in the reserve analysis and takes the guesswork out of the accrual.  

Stage 3: Finding margin at scale 

Before you reach 10,000 WSE, you’ve probably realized growth and profitability go hand in hand – but at this stage profitability becomes the sharper focus. Many PEOs discover too late that their largest clients aren’t their most profitable, or that certain industry segments are driving disproportionate claims. Without granular insight, it’s easy to misallocate resources or overlook emerging risks.  

What’s needed here is a profitability analysis that helps you understand which parts of your book are creating value and which are eroding it. Add in an industry benchmark comparison, and you get the context to see how your performance stacks up against peers. These insights help you refine pricing, improve retention, and make smarter decisions about where to grow next, whether doubling down on an industry that’s already a hidden gem or expanding into untapped geographies.   

Stage 4: Expanding through M&A 

For mature PEOs, growth often comes through acquisition, but M&A introduces a new layer of complexity. Behind every deal are actuarial insights that can dramatically affect valuation and post-transaction synergies. Whether you’re preparing to sell or evaluating a target, actuarial diligence is what helps you validate assumptions, uncover hidden risks, and align the numbers with your strategic vision. At the end of the day, you want to know that the actuarial story supports the business case. 

Important note: Taking control of risk 

Anywhere along the growth timeline, you may consider moving beyond small deductibles into large deductible programs, self-insurance, or captives. These structures can offer more control and potential savings, but they also require a higher level of discipline. Retained risk becomes a strategic asset, but only if it’s managed with rigor. No matter what stage you’re in, if you’re considering assuming more risk, it pays to pause and take a cautious and realistic look at your processes and people. Do you have the right team for the next step in risk maturation? How confident are you that $500K, $1M, $2M is the appropriate retention, or should it be higher/lower?  

We’re here to help if you need it.  

What I’ve learned working with PEOs is this: you don’t need more complexity. You need clarity and confidence. That’s what actuarial services aim to deliver at every stage of your PEO’s journey. Whether you’re pricing your first policy or preparing for a major acquisition, the right actuarial tools and guidance helps you turn uncertainty into direction, and growth into something sustainable. 

If you would like to continue the conversation, get in touch with Head of P&C Actuarial Solutions, Frank Huang at frank.huang@us.davies-group.com