Introduction

Hi, my name is Doug Lewellyn and I work with Illinois Workers Comp employers for Zeiler Insurance Services.

Welcome to my Workers' Compensation Experience Modification Blog.  The purpose of this blog is to discuss the Experience Modification Worksheet and its effect on Work Comp Rates.

Our primary goal here is to improve Employer Workers' Compensation program knowledge.  If you are involved with Insurance for Workmans Comp for your company, please join in on our discussion and learn about our process to drive down your Experience Mod and Work Comp Premium.

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Assigned Risk Adjustment Program

 

Assigned Risk Adjustment Program – (ARAP)

 

Another reason you should carefully manage your Workers Compensation Insurance Program and Employee work related injuries.

 

A Workers Compensation Insurance Policy is unlike other insurance policies, in that it acts more like a finance mechanism than an insurance policy. Insurance Companies don’t pay for Work Related Injuries, Employers do!

 

The ARAP is just one more surprise lurking in the shadows of your Experience Rating Modification Worksheet that you had better understand before dismissing the affect of mismanaging your Workers’ Compensation Program.

 

The ARAP modification is applied after the Experience Modification and does not replace it. Salt in the wound to Employers that are forced out of the Voluntary Market, the ARAP can add an additional 49% to the cost of your Workers’ Compensation Insurance Premium.  

 

Read more about the Assigned Risk Adjustment Program in NCCI’s article Did You Know….

 

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Workers’ Compensation Premium Audit Alert!

Every year, Illinois Workers’ Compensation and Employers Liability rates can change based on the industry loss experience in the Governing Classification.  NCCI compiles data for Illinois, and traditionally rates are adjusted beginning January 1st.

 

For example, Class Code 5645 Carpentry—Detached One or Two Family Dwellings:

 

            Voluntary rate was 23.17 per $100 payroll Effective January 1, 2010,

            and increased to 23.60 per $100 payroll Effective January 1, 2011.

 

We can all recognize how the rising cost of medical expenses and higher weekly wages play a part in the increased rates and subsequent premium an employer pays for a Workers’ Compensation Policy.

 

For those employers who elect to include coverage for Executive Officers, another dramatic increase in premium is on the horizon. 

 

Along with the traditional increase in rates, Effective January 1, 2011:

 

Minimum Payroll applicable in accordance with Basic Manual Rule 2_E-1 –“Executive Officers”  was increased 250% over 2010 to $1,000 per week.

 

For example, an Owner / Executive Officer of a Carpentry Risk included on the Workers’ Compensation Policy had a Minimum Payroll exposure of $400 / week in 2010, or $20,800. Same Executive Officer has a Minimum Payroll exposure of $1,000 / week in 2011, or $52,000.   Based on the published rates above, at minimum payroll, the Executive Officer’s portion of the Premium just increased from $4,819 to $12,272.

 

If you have Executive Officers covered on a Workers’ Compensation Policy in Illinois, with exposures that have been at or below the minimum payroll, be aware of the changes that will be reflected come audit time.

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CCPAP Credit for Contractors in Illinois - NCCI Webinar -

Illinois is one of 13 states that participates in NCCI's Contracting Classification Premium Adjustment Program (CCPAP). 

CCPAP addresses premium inequity between higher wage and lower wage employers.

To learn more about CCPAP, including an overview of the program and how to complete an application, view the webinar available at NCCI.com via this link.

CCPAP Webinar

The Adobe Flash Player is required to view the above module.
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What is Workers' Compensation Fraud in Illinois?

From the Illinois Workers' Compensation Commission website - Fraud Unit...

Read what constitutes fraud and the associated penalties in the Illinois Workers' Compensation Act - 

     Section 25.5.  Unlawful acts; penalties.

Read the list of Convictions Resulting from Workers' Compensation Fraud Unit Investigations in 2008 & 2009 - 

    WCFU Convictions


Workers' Compensation Fraud is a Crime -  Posters.

It is illegal for anyone—a worker, employer, insurance carrier, medical provider, etc.—to intentionally do any of the following:

• Make a false claim for any w.c. benefit;

• Make a false statement in order to obtain or deny benefits;

• Make a false statement in order to prevent someone from filing a legitimate claim;

• Make a false certificate of insurance as proof of insurance;

• Make a false statement in order to obtain w.c. insurance at less than the proper rate;

• Make a false statement in order to obtain approval to self-insure or reduce the security required to self-insure;

• Make a false statement to the state’s fraud and noncompliance investigation staff in the course of an investigation;

• Help someone commit any of the crimes listed above;

• Move, destroy, or conceal assets so as to avoid payment of a claim.

A “statement” includes any writing, notice, proof of injury, or any medical bill, record, report, or test result. 

Anyone found guilty of any of these actions is guilty of a Class 4 felony, punishable by 1-3 years imprisonment and a $25,000 fine.
The guilty party shall be required to pay complete restitution, and may be found civilly liable for up to three times
the value of benefits or insurance coverage that was wrongfully attained.

 

Contact information
You must submit complaints in writing.  You must identify yourself and, at some point, the person you are reporting will be given your name.
You must provide a written complaint, provide enough information to cause the unit to open an investigation, and be prepared to testify. 
Anyone who intentionally makes a false report is guilty of a Class A misdemeanor, punishable by up to 12 months imprisonment and a $2,500 fine.


Northern Illinois

Adam Monreal
Workers' Compensation Fraud Unit
Illinois Department of Insurance
adam.monreal@illinois.gov
312/814-1323
toll-free 877/923-8648
100 W. Randolph St. 9th floor
Chicago, IL 60601

Downstate

Francis "Buzz" Walsh
Workers' Compensation Fraud Unit
Illinois Department of Insurance

francis.walsh@illinois.gov
312/636-9457
toll-free 877/923-8648
320 W. Washington
Springfield, IL  62786


 

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What are the penalties for not carrying Workers' Compensation insurance in Illinois?


From the Illinois Workers' Compensation Commission's Handbook on Workers' Compensation and Occupational Diseases:

An employer that negligently fails to provide coverage is guilty of a
Class A misdemeanor for each day without coverage, punishable by
up to 12 months imprisonment and a $2,500 fine.

An employer that knowingly fails to provide coverage is guilty of a
Class 4 felony for each day without coverage, punishable by 1-3
years imprisonment and a $25,000 fine.

An uninsured employer may be also fined up to $500 for every day it
lacked insurance, with a minimum $10,000 fine.

An uninsured employer loses the protections of the Workers’
Compensation Act for the period of noncompliance. That means an
employee who was injured during the period of noncompliance may
choose to sue in civil court, where there are no limits to awards.

In addition, if the Commission finds that an employer knowingly
failed to provide insurance coverage, it may issue a stop-work order
and shut the company down until it obtains insurance.

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Workers Compensation Program Goals

Implementing a comprehensive plan to drive down your Workers Compensation Experience Modification can be daunting task.   Where do you begin?  

Here is a "To Do List" that will get you started down the road to effectively managing your Experience Modification.  

#1 – Have robust hiring practices that include the use of a conditional offer of employment and a robust medical screening that does not let 100% of the people through.

#2 – Actively measure and intentionally improve the safety culture of the workplace.

#3 – Have a well-trained injury management coordinator with clear authority and responsibility to oversee the rapid recovery and return-to-work of any injured employees.

#4 – Train supervisors to understand the importance of their relationships with employees and to optimally manage the post-injury supervisor / employee relationship.

#5 – Have a robust return-to-work program that ALL employees are aware of (there is some hidden psychology here) that gets employees back to work before indemnity payments start  - a big benefit in ERA states!

#6 – Establish and nurture a working partnership with a medical clinic that will ensure effective medical screenings and, in the case of an injury, the right treatment plan that will lead to the most rapid return to work possible.

These are just a few of the steps we recommend you implement to effectively manage your Illinois Workers Comp program and reduce your work comp rates. 

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Workers Compensation Experience Rating Formula

What is the average cost per claim for losses used in experience rating in Illinois?


Published in the NCCI Experience Rating Plan Manual, the Illinois Table of Expected Loss Rates and Discount Ratios includes includes the Table of Weighting Values and Table of Ballast Values, in addition to several limiting factors that are used to determine your experience rating. 

According to the Experience Rating Plan Manual:

Experience rating modification factors determined by the formula in Rule 2-D-1 are subject to a cap if the debit modification exceeds a specific amount. The risk-specific maximum debit modification is determined as follows:

Maximum Debit Modification = 1 + {(0.00005)[(Total Expected Losses) + (2)(Total Expected Losses)/(G)]}

The maximum debit modification for an interstate risk is limited to the cap for the state with the largest amount of expected losses.

“G” is a factor equal to a state's average cost per claim for losses used in experience rating, divided by 1000.   For Illinois in 2010, "G" is 13.70. 

Therefore, the average cost per claim for losses used in experience rating in Illinois is $13,700.

 

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State of the Workers Compensation Line 2010



NCCI Chief Actuary Dennis Mealy delivered his State of the Line report at the Annual Issues Symposium 2010.  Listen to the following presentation as this year's report outlines some difficult trends facing the workers compensation industry.


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Managing Injured Employees

How do you react when an employee is injured at work?  Your process to handle work related injuries has a direct effect on your Workers Compensation Costs.  Being prepared for work related injuries and training your management team to react appropriately will save you both direct and indirect premium costs.

 
click here to view tips on managing ill or injured employees.



 

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Illinois Workers Comp Ratemaking

The NCCI provides information on workers compensation insurance via a series of webinars on demand, designed to give an overview of the basic components of workers compensation.

Find out how workers compensation insurance pricing is determined.  View this 13 minute webinar on demand by clicking here.
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Illinois Workers Comp Classification System Overview

The NCCI provides a series of webinars on demand that give an overview of the basic components of workers compensation. 

Learn the purpose of classifying businesses, how classification relates to premium, and more in this 22 minute webinar on demand.

Click here to view the Classification System Overview webinar.
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Part Two: Employers Liability Insurance


Employers Liability Insurance - the Second Part of your Worker's Compensation Policy

Have you reviewed this critical coverage to ensure there are no gaps in coverage that can leave you at risk?

Your work comp policy is designed to be the sole exclusive remedy for work related injuries. 

Workers Compensation is a system of benefits provided by law to most workers who have job-related injuries or diseases. These benefits are paid regardless of fault, and are determined by each state's own workers’ compensation law or statute.

Illinois law provides the following benefits which are covered under Part One of the Policy: 
 
      Medical care that is reasonably required to cure or relieve the employee of the effects of the injury;

      Temporary total disability (TTD) benefits while the employee is off work, recovering from the injury;

      Temporary partial disability (TPD) benefits while the employee is recovering from the injury but working on light duty;

      Vocational rehabilitation/Maintenance benefits are provided to an injured worker who is participating in an approved vocational rehabilitation program;

      Permanent partial disability (PPD) benefits for an employee who sustains a permanent disability or disfigurement, but can work;

      Permanent total disability (PTD) benefits for an employee who is rendered permanently unable to work;

      Death benefits for surviving family members.

The idea behind this no fault coverage is to reduce litigation between injured employees and employers. 
By providing the state statute benefits listed above, the employer cannot be sued by an injured employee for negligence surrounding a work related injury.

However, litigation still arises when extreme gross negligence is alleged or 3rd party over action suits are filed.

For example, a spouse or family member of an injured or deceased employee may file suit alleging gross negligence on the part of the employer.
Or, an employee injured by a malfunctioning piece of equipment may litigate against an equipment manufacturer, who in turn files counter suit against the employer for improper use of the equipment.

Both of these types of litigation would not be covered on the employers General Liability Insurance, since work related incidents to an employee are EXCLUDED on a General Liability Policy. 
Remember - Workers' Comp is meant to be the sole exclusive remedy for work related injuries.

In steps Part Two of your Work Comp Policy - Employers Liability Insurance.

In addition to the cost to defend against such litigation, coverage includes all sums you legally must pay as damages because of bodily injury to your employees:

      for which you are liable to a third party by reason of a claim or suit against you by that third party to recover the damages claimed against such third party as a result of injury to your employee; 

      for care and loss of services; and

      for consequential bodily injury (pain and suffering) to a spouse, child, parent, brother or sister of the injured employee.

Basic Limits of Employers Liability Insurance are 

      Bodily Injury by Accident: $100,000 Each Accident
      Bodily Injury by Disease: $500,000 Policy Limit
      Bodily Injury by Disease: $100,000 Each Employee

Is this a coverage gap in your business?  Could your litigation defense costs and damages exceed $100,000?
Does your commercial umbrella insurance require higher underlying limits?
For the nominal additional cost, we recommend raising these basic limits to $1,000,000 / $1,000,000 / $1,000,000.

 

 

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Experience Rating Adjustment

Understanding your Workers Compensation Experience Modification will help you prepare how to react to work related injuries. 

It's right there, smack dab in the middle of your Experience Rating Worksheet...
 

"RATING REFLECTS A DECREASE OF 70% MEDICAL ONLY PRIMARY AND EXCESS LOSS DOLLARS WHERE ERA IS APPLIED."

What is ERA?

A)  Earned Run Average
B)  Equal Rights Amendment
C)  Laundry Detergent
D)  Experience Rating Adjustment

For this illustration, answer D)  Experience Rating Adjustment.


In ERA States, the Experience Modification Factor allows for the 70% reduction in the reportable amount of medical-only claims.

That is, for claims where there has been no payment to the injured worker for lost time, the medical only loss is reported at only 30% of the actual claim.

Why was this implemented by NCCI? 
 
 It gives employers an incentive to report all claims to their insurers, rather than trying to pay for medical-only claims out of pocket.   Reason being, Claims are handled more efficiently by Insurance Companies rather than Work Comp Employers.

Why is this important to an employer? 

Discounting medical-only claims in the experience mod calculation significantly reduces the impact of medical-only claims on the modifier.

What processes can you put in place to take advantage of this 70% credit?

1)  Establish Occupational Health Clinic Relationships and Educate Management on proper procedures when an employee is injured at work.

2)  Establish Return to Work Guidelines, including well-supervised and medically-appropriate temporary transitional work.

3)  Coordinate with Treating Physicians, Management, and Employees.

Managing your Experience Modification and work related injuries will help reduce your Work Comp Rates!
 

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Valuation Date

Workers' Compensation Experience Rating Worksheet -

The information on your worksheet is collected from up to 45 months of prior policy data and provided by your insurance company.  Although the data has been reviewed, errors do occur.
Pay special attention to the workers compensation classification codes, payroll and losses that have been reported. 

When is data reported? 

Carriers are required to take a snapshot of  your account,
including Claim Payments and Reserves on the "Valuation Date", or 18 months after a policy is issued.
For instance, a policy that begins on 01/01/2009 and ends on 01/01/2010 has a valuation date of 07/01/2010.

Losses from the 2009 policy period will be reported as of 7/1/2010 and help generate the Experience Modification for the 01/01/2011 renewal.  The 2011 Experience Mod will also include data from the 2008 and 2007 policy periods.

Why is this date important? 

When a claim is first reported to an Insurance Carrier, an Adjuster is assigned to follow up with the injured employee's treatment and recovery, pay the medical bills, handle disability payments, etc.  They are required to set aside "reserves" as an estimate of future payments.  When a claim is complete and the injured worker returns to work, these "reserves" are often left open and reported as paid losses.  Higher losses generate a higher Experience Mod and drive your Work Comp Premiums up!  Knowing the valuation date allows you to communicate with adjusters about closing reserves before they are reported erroneously.


 


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Workers Compensation Experience Modification

Experience Rating and your Work Comp Premium

Experience rating recognizes the differences among insureds with respect to safety and loss prevention.
It does this by comparing your experience with the average employer in the same industry.

The differences are reflected by an experience rating modification, based on individual payroll and loss records, which may result in an increase (debit), decrease (credit), or no change in your Work Comp Premium.

Check out the NCCI booklet abc's of Experience Rating to further your understanding of experience rating and how it affects your workers compensation costs.
 

 

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