Illinois Workers Compensation Insurance Audit

I just received the results on a disputed audit for a local Chicago business client. The error on this audit is typical of how the audit process favors the insurance companies. The process starts with all of the payroll assigned to the governing classification and then qualifying payroll exceptions get carved out depending on duties, type of pay, etc.  

In this case it was the starting pay that was in error.  A number was pulled off of a spreadsheet that had nothing to do with the annual payroll figure noted on that same spreadsheet. This was a $32,000 mistake.


Please call with questions.

Dan Zeiler

708.597.5900 x134



Illinois Workers Compensation Insurance ERA Credit

I want to remind you about the importance of taking advantage of the Experience Rating Adjustment (ERA) factor offered in Illinois. 
I'm working with a potential client on ways to help control their Workers Compensation insurance expense.  The incidents on the Specific Loss Report shown below are actual claims on the Experience Mod of a Chicago, Illinois business.
The report below shows the effect of three claims on the Experience Mod and the additional premium projected (for the three years that it affects the Mod):
1.) A large loss ($113,256). Kind of what you might expect from the mechanics of an insurance policy. The company gets hit with a loss and your premium is affected with paying a surcharge. In this case the three year cost is $28,266 with a 17% effect on the workers compensation experience mod.
2.) A small claim ($2,883) that included “indemnity”.  Indemnity is basically disability payments for time off for the injured worker.  This employee sprained his ankle.  Take a peek at the three year claim cost…Yep!!  $5,519. The Insurance Company actually profits on this one.
3.) A second small claim ($2,083).  This claim was medical only with no “indemnity” paid.  As you can see, the three year cost on this claim is $1,206.
The reason for the big difference between 2 and 3?  Experience Rating Adjustment (ERA) factor. Only 70% of the claim cost is used in the experience modification calculation for Medical Only Claims. The purpose of which is to encourage businesses to report small claims.
Going back to our employee that sprained his ankle - what type of work could you have him do around the office, even though his ankle is sprained, so that his days "off" don't rack up your Experience Mod? 
Do you think you might have some safety manuals he could read or better yet maybe even wash a truck or two?
From the report, this claim affected the mod by 3.35%.  What if the mod for this business was floating in the 1.00 area?  
On a side note - If this example involved a contractor, this 3.35% could have disqualified the contractor from the Contractor Classification Premium Adjustment Program (CCPAP). These credits can be 40% of the Workers Compensation premium.
Please call with questions.
Dan Zeiler
708.597.5900 x134

Employers: Control Your Workers' Comp Costs

Ways Employers Can Control Their Workers' Compensation Costs

The law requires most businesses to carry workers' compensation insurance. This protects employees and employers both, and it gives income to workers in the event they are injured badly enough they require time off of work to heal. For employers, workers' compensation liability insurance gives coverage for any lawsuits that may be filed due to work-related injuries.

 The amount of money employers pay for workers' compensation insurance will vary depending on the industry of work and the company's claim history. For companies where the work is based out of an office, insurance is much less expensive than it would be for more dangerous jobs such as warehouses, trucking companies or factories. Regardless of the industry, there are several ways employers can keep their workers' compensation costs under control. Keep these helpful tips in mind.

Train all new employees thoroughly. According to research, about 30 percent of claims come from accidents that involve new hires. Employers should review their orientation programs to identify weaknesses and areas for improvement. It is better to be too thorough than not thorough enough with these programs.

Keep safety as the top priority. Not incurring claims is the best way to keep costs lower. Employers should build a culture of safety throughout the workplace that engages workers in their efforts. For example, making safety councils where ideas are solicited from workers about how to make the workplace safer is a useful step.

Screen all potential new hires carefully. Make sure the right workers are hired initially by taking advantage of screening options. Researchers say that workers who are substance abusers are much more likely to cause accidents on the job and sustain injuries. Drug screening programs should be essential in every workplace for possible candidates, and background checks that are applicable with state laws can also help in many instances.

Classify all workers correctly. Classification codes are used to identify workers' levels of compensation. When employees are not classified correctly, the employer may find coverage is inadequate. There are fines for wrongly classifying workers and not having enough coverage.

Manage all claims proactively. If an employee sustains an injury on the job, it is important for the employer to keep track of the worker's condition. He or she should also begin planning for the worker's return as soon as possible. It is better to have the worker come back and perform light duties than to stay off work for a long time waiting to return to his or her traditional heavier duties. Having a worker rejoin the workforce and perform lighter duties is a good way to help reduce a claim as well.

Workers' compensation coverage is a must for all employers. Controlling costs will help keep the business competitive and lower expenses. To learn more, discuss concerns with us.

If you have questions or concerns on this issue, do not hesitate to call Zeiler Insurance and speak to one of our customer service representatives. As an independent agency, Zeiler Insurance prides itself with quality customer services for the people of the Chicago-land area and the rest of the Midwest. Customer or not, we can review your insurance and see if you are being protected appropriately for the right price.

-Dan Zeiler

(708) 597-5900  X134

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OSHA announces new requirements for reporting severe injuries and updates list of industries exempt from record-keeping requirements



OSHA announces new requirements for reporting severe injuries and updates list of industries exempt from record-keeping requirements. 

The U.S. Department of Labor's Occupational Safety and Health Administration today announced a final rule requiring employers to notify OSHA when an employee is killed on the job or suffers a work-related hospitalization, amputation or loss of an eye. The rule, which also updates the list of employers partially exempt from OSHA record-keeping requirements, will go into effect on Jan. 1, 2015, for workplaces under federal OSHA jurisdiction.

The announcement follows preliminary results from the Bureau of Labor Statistics' 2013 National Census of Fatal Occupational Injuries*.

"Today, the Bureau of Labor Statistics reported that 4,405 workers were killed on the job in 2013. We can and must do more to keep America's workers safe and healthy," said U.S. Secretary of Labor Thomas E. Perez. "Workplace injuries and fatalities are absolutely preventable, and these new requirements will help OSHA focus its resources and hold employers accountable for preventing them."

Under the revised rule, employers will be required to notify OSHA of work-related fatalities within eight hours, and work-related in-patient hospitalizations, amputations or losses of an eye within 24 hours. Previously, OSHA's regulations required an employer to report only work-related fatalities and in-patient hospitalizations of three or more employees. Reporting single hospitalizations, amputations or loss of an eye was not required under the previous rule.

All employers covered by the Occupational Safety and Health Act, even those who are exempt from maintaining injury and illness records, are required to comply with OSHA's new severe injury and illness reporting requirements. To assist employers in fulfilling these requirements, OSHA is developing a Web portal for employers to report incidents electronically, in addition to the phone reporting options.

"Hospitalizations and amputations are sentinel events, indicating that serious hazards are likely to be present at a workplace and that an intervention is warranted to protect the other workers at the establishment," said Dr. David Michaels, assistant secretary of labor for occupational safety and health.

In addition to the new reporting requirements, OSHA has also updated the list of industries that, due to relatively low occupational injury and illness rates, are exempt from the requirement to routinely keep injury and illness records. The previous list of exempt industries was based on the old Standard Industrial Classification system and the new rule uses the North American Industry Classification System to classify establishments by industry. The new list is based on updated injury and illness data from the Bureau of Labor Statistics. The new rule maintains the exemption for any employer with 10 or fewer employees, regardless of their industry classification, from the requirement to routinely keep records of worker injuries and illnesses.

For more information about the new rule, visit OSHA's website at




Illinois Workers Compensatipon - How to Prepare for a Workers' Compensation Audit

How to Prepare for a Workers' Compensation Audit

The mere mention of a workers' compensation audit is enough to strike fear in nearly any business owner. For anyone who is scheduled for an audit, there is no need to worry or be fearful. With a little bit of common sense and preparation, much money and aggravation can be spared.

It is important to devote a few hours to setting up preparations. This small step can prevent days and weeks of hassles in the future. Business owners should plan to give their full attention to the auditor throughout the process, which can take several hours from start to finish. For this reason, it is important to make sure the time and date are both convenient. If the audit has been rescheduled or was not set for an appropriate time, call to reschedule it.

Start collecting and organizing and records that show payroll reports and overtime. Make sure insurance certificates and classification divisions are also available. Write up a summary of each one to make explanations easier and to more effectively communicate with the auditor during the process. If information is organized well, this will help expedite the process. The auditor may feel more comfortable in trusting a business owner's data if all calculations can be reconciled to payroll records.

Prior to the meeting with the auditor, it is also important to make any necessary adjustments to payroll. For example, a business owner might need to subtract bonus pay from overtime pay. Minimum and maximum payrolls will need to be applied to the calculations when applicable. This may take some research, and the amounts will vary from one state to the next. They also vary between types of careers, partners, executive officers and sole proprietors.

Business owners should make sure they understand all employee job classifications and can explain them clearly to the auditor. They should also ensure employees are properly classified for the work they perform. If the auditor has questions or concerns, this can slow the process down considerably. Auditors usually ask about duties and classifications for multiple employees, so being prepared is essential. For help classifying them, discuss the details and any concerns with an agent.

When working with subcontractors, keep in mind that payments made to them will go against workers' compensation if they did not have certificates. Ask for copies of their certificates, and check them carefully to ensure they are updated and show coverage for the entire time span when the subcontractor was working. After the auditor arrives, all of these preparations will be well worth the time spent. Most business owners are also pleasantly surprised to find that auditors are not the mean individuals they picture them to be. Most auditors are pleasant and fair, and this is especially true when all of the details are in order.

After the audit is finished, politely ask the auditor for a copy of the worksheet. We can review it for accuracy. Every person has a legal right to request a corrected audit if any errors are suspected or confirmed. Business owners also have the right to recover any over-payments that were made under the previous three audits.


Understanding How Illinois Workers Compensation Experience Rating Works

Understanding How Illinois Workers Compensation Experience Rating Works  

Many people wonder why it is necessary to use experience rating to predict future losses if workers' compensation rates are designed for this purpose. Experience rating can benefit employers. The prospects of both bad credits and debits are implicit in the majority of risk-specific programs dealing with experience rating. Since it gives an employer some influence in how much the final premium will be, this gives an incentive for them to develop their loss prevention strategies. It is also good for them to form incentives that encourage injured employees to return to work as soon as they are able. When this happens, experience rating can be beneficial to employers by increasing occupational safety and health.

Experience rating shows a refinement in processes of premium determination. It creates a net premium cost for employers, which means their costs will be appropriate for the provided coverage. Experience rating shares or spreads the cost of a loss with all group members who are likely to go through similar losses. Although the probability and cost of injuries for an entire group as a whole may not be accurately predictable, it is not possible to decide which member of the group will ultimately be responsible for costs.

This is why there is insurance. If it were possible or easy to predict, group members who do not experience loss would not have any incentive to purchase coverage. Meanwhile, the premium charge for members experiencing losses would need to include the loss costs. Serious injuries to individuals are usually rare, but the totals can be minor amounts or reach well into the millions. For workers' compensation, the easiest rating method is manual rating. With this system, employers are categorized according to business classifications or operations. Group losses are estimated and then added as an average.

Employers are assigned to specific classifications to make sure the rates they receive are reflective of the costs all similar employers have. While each classification comes with similar risks, individual ones are different in some ways. However, experience rating is designed to reflect individual differences. Insurance providers would be able to look for employers with lower costs and avoid ones with higher costs if the rating system were only manual. The system needs to be refined to avoid such a scenario, and experience rating falls under that category.

With workers' compensation experience rating, individual employers' loss and payroll data are analyzed over time. The most recent three years of data is reviewed against similar groups' risks to determine the experience modification. An employer that has better experience ratings will be given credits, but those with less will be given debit ratings.


Illinois Workers Compensation and Subcontractors

A bill addressing the missclassification of construction workers as independent contractors has been signed into law by Governor Pat Quinn.   

House Bill 2649 is meant to fight employers who missclassify their workers in an attempt to avoid paying state employment taxes, unemployment insurance, worker's compensation, and overtime. The practice turns the tax burden over to workers and costs the state up to $700 million a year in lost payments and taxes.

Under the new law, the Employee Classification Act will be clarified and it will be easier to pursue violators.

In addition, the signing of House Bill 923 also amends the Employee Classification Act to require all contractors report all payments to people not classified as company employees to the Illinois Department of Labor. The goal is to prevent tax evasion and ease tax liability for those workers.

The two laws go into effect on January 1.


Construction Safety Council Classes for August 2013


 AHA First Aid/CPR/AED

Friday, August 9, 2013  

7:30 am to 1:00 pm


ATSSA Flagger/Work Zone Hazards Training

Tuesday August 6, 2013
7:30 am  - 11:30 am   


CHST Prep Course - 2 Day Course  

Wednesday, August 28 &

Thursday, August 29

Contact Mike Gibson with for more information at 502-333-8064     


Confined Space Entry

Thursday, August 29, 2013

7:30 am 


EPA Lead Renovator One Day (8 Hour) Training Program

Thursday August 8, 2013 - in English
7:30 am


Excavation Safety for the Competent Person

Wednesday, August 28, 2013

7:30 am  


Fall Protection Safety for the Competent Person

Tuesday, August 27, 2013

7:30 am - 4:00 pm  


General Industry Safety Breakfast

Friday, August 23, 2013

9:00 am to 11:00 am 


HazCom/GHS-Globally harmonized System of Chemical Classifications & Labeling of Chemicals   
Wednesday, August 7, 2013

7:30 am 


NFPA 70E/Electrical Safety for Construction

Tuesday, August 20, 2013

7:30 am - 11:30 am  


OSHA 30 Hour for Construction - 4 Day Class    

Tuesday, August 13, 2013 

Thursday, August 15, 2013 

Tuesday, August 20, 2013 

Thursday, August 22, 2013  

7:30 am - 4:00 pm  


OSHA 510 Course:
August 5, 2013 to August 8, 1013

To register call NSEC at 800-656-5317 or


OSHA 502 Instructor Renewal

Tuesday August 20, to Thursday August 22, 2013

To register call NSEC at 800-656-5317 or         


OSHA 10 Hour for Construction - 2 Day Class

Tuesday, August 13 & Wednesday, August 14, 2013  

7:30 am  


OSHA 10 Hour for General Industry Day - 2 Day Class

Saturday, August 17, 2013 &  

Saturday, August 24, 2013

7:30 am to 1:00 pm 


Process Safety Management   

Wednesday, August 21, 2013

7:30 am to 4:00 pm


Rigging Hazard Awareness

Wednesday, August 14, 2014

12:00 Noon   


Scaffold User and Erector Hazards Training

Monday, August 19 , 2013    

7:30 am - 4:00 pm


Scaffold User Hazard Awareness

Friday, August 16, 2013

7:30 am

Signal Person Hazards for Cranes
Wednesday, August 14, 2013
7:30 am


Register Online

Print registration form for all classes.  

View the Online Calendar




Illinois Works Compensation - Misclassification of Employees

Misclassification of Employees is Payroll Fraud. Here's How To Stay Out of Trouble

The Internal Revenue Service and Department of Labor have been going after employers who misclassify employees as independent subcontractors - and the construction industry is squarely in their crosshairs.

In late 2011, the DOL and IRS entered into a formal agreement of cooperation in sharing information and data in order to enforce employment laws. If you have been improperly failing to withhold income taxes and contribute the employer portion of the Social Security and Medicare taxes, and failing to pay unemployment insurance premiums and workers compensation premiums for people functioning as employees, and one of them complains to the Department of Labor, you can expect the IRS to get wind of it, too.

Additionally, if you are using an unlicensed contractor, and closely directing their work, the Department of Labor and IRS will consider this individual to be an employee, not a contractor. If that person is injured while functioning as an employee, the employer is liable… and you had better have workers compensation insurance in place.

The distinction is especially critical in the construction industry, because of the innately hazardous nature of the workplace. Independent contractors are generally expected to provide their own insurance. Employees are not, but are covered under their employers' plan. Failure to comply with employee classification laws risks employees falling through the cracks - and severe consequences for employers.

A Pervasive Form of Fraud

The deliberate misclassification of employees as independent contractors is an epidemic form of payroll fraud in the construction industry - and law enforcement at both the federal and state level nationwide are focusing resources on eradicating it.

Some studies indicate that as many as one worker in twenty is misclassified as a contractor when he should be considered an employee - and that companies that do misclassify workers as independent contractors do so routinely. Among employers that have been caught conducting this kind of fraud, they do so for an average of 40 percent of their workers.

This creates a substantial pricing advantage for dishonest contractors - and makes it that much more difficult for legitimate construction contractors to compete on a level playing field.

The practice also severely undercuts the industry as a whole, according to some observers and market participants. Marek Brothers Construction CEO Stan Marek maintains that as long as dishonest contractors circumvent wage and hour laws, there there is no viable career path for young people who might otherwise consider going into the construction industry. "We will never attract young men and women into the construction industry until there is a career path," he told a panel of Texas legislators and regulators. "There's a tremendous need for skilled workers. A lot of kids don't want to go to college. But if the construction industry is dominated by businesses that exploit workers, Texas kids aren't going to sign up… It is a cancer that is eating the industry. It is killing us."

 Penalties for Payroll Fraud

It's not just federal officials cracking down on employee misclassification and payroll fraud - state governments are also going after employers practicing this form of fraud, and a number of states have actually increased penalties in recent years.

Companies caught committing payroll fraud are typically charged back taxes and interest by both the IRS and state revenue officials. Companies are also fined up to hundreds of dollars per day per worker not covered by workers compensation insurance. Construction firms have also been hit with on-the-spot 'stop work' orders when state inspectors discover workers on site who aren't covered by workers compensation. This can lead to cost overruns, time delays and uncomfortable conversations with customers and prime contractors upstream.

In egregious cases, people have been sentenced to prison time.  For example:

On September 6, 2012, in Richmond, Va., Mark S. Holpe, of Midlothian, Va., was sentenced to 18 months in prison and fined $40,000 for evading the payment of employment taxes on unreported cash wages he paid employees of Nature's Way Landscaping, Inc. Holpe pleaded guilty to evading the assessment of $326,196 of employment taxes. Holpe worked for Nature's Way, a business that did residential and commercial landscaping in the Richmond metro area. He was originally the president, but became the treasurer in 2007 when he sold a portion of the business. In entering his plea, Holpe acknowledged that the company had two groups of employees during tax years 2006 through 2009. Holpe admitted that he paid one group of approximately 30 employees $2,132,000 in cash wages during that period, without withholding social security taxes.



Staying out of Trouble

It is true that there is substantial gray area in defining who is an employee vs. who is an independent contractor. The IRS has published a 20-point series of tests to help determine how a worker should be properly categorized. In the construction industry, a lot of it comes back to who is holding the license: If you hire an unlicensed contractor, and you are directing their work and telling them what to do on a daily basis, and they are operating under your license, this is clearly an employee.

If that worker is injured, the employer is liable, and if workers compensation insurance is not in place, the medical costs could potentially push an employer into bankruptcy - even before back taxes, penalties and possible criminal prosecution is taken into account.

By way of further examples, your independent contractor may legally be an employee if any of the following factors apply:

  1. You provide tools, training and/or materials for the job.
  2. You are closely directing what time the worker or workers must show up on the job.
  3. You are 'counseling' workers in writing about tardiness or other disciplinary issues.
  4. You are dictating methods. Contractors don't tell subcontractors how a job is to be done - they just define the scope of work and leave it to the subcontractor how best to complete it. If you tell someone how to do a job, rather than just describing the end state, chances are you could be turning them into a legal employee.
  5. You expect any kind of exclusivity.
  6. Do you require any kind of company-provided training?
  7. Do you pay transportation expenses or provide transportation for these workers?
  8. Do you reserve the right to terminate the worker at will?

The complete IRS 20-factor test can be viewed here.

Note that not all 20 factors need apply for the IRS, Department of Labor or state officials to determine that an employment relationship exists. Officials can and have determined that an employment relationship exists even when just a few of the 20 factors apply.

Meanwhile, if there is any doubt or gray area, it's important to address it immediately - and maintain legally required workers compensation, medical and other coverage until you are certain you are engaged in a bona fide contractor-to-contractor relationship, rather than an employer/employee relationship.


An overview of the current status of Workers Compensation in the US

Topic provided by the Insurance Information Institute

Workers compensation insurance covers the cost of medical care and rehabilitation for workers injured on the job. It also compensates them for lost wages and provides death benefits for their dependents if they are killed in work-related accidents, including terrorist attacks. The workers compensation system is the “exclusive remedy” for on-the-job injuries suffered by employees. As part of the social contract embedded in each state’s law, in all states except Texas, where employers may opt out of the state’s workers compensation system, the employee gives up the right to sue the employer for injuries caused by the employer’s negligence and in return receives workers compensation benefits regardless of who or what caused the accident, as long as it happened in the workplace as a result of and in the course of workplace activities. There were 114,000 employers in Texas that did not participate in the workers compensation program, according to Best’s News Service, April 10, 2012, see also Background section of this report.

Workers compensation systems vary from state to state. State statutes and court decisions control many aspects, including the handling of claims, the evaluation of impairment and settlement of disputes, the amount of benefits injured workers receive and the strategies used to control costs. From 2010 to 2011 maximum income benefits for total disability increased an average 3.09 percent. The average maximum weekly benefit in 2011 was $806.62 according to the U.S. Chamber of Commerce 2011 Analysis of Workers Compensation Laws.

Workers compensation costs are one of the many factors that influence businesses to expand or relocate in a state, generating jobs. When premiums rise sharply, legislators often call for reforms. The last round of widespread reform legislation started in the late 1980s. In general, the reforms enabled employers and insurers to better control medical care costs through coordination and oversight of the treatment plan and return-to-work process and to improve workplace safety. Some states are now approaching a crisis once again as new problems arise.


  • National: According to NCCI’s State of the Line analysis, in 2011 workers compensation premiums for private carriers and state funds increased to $36.3 billion in 2011, a 7.4 percent jump from 2010 and the first since 2005. (For private carriers alone, premiums were $32.2 billion, compared with $29.9 billion in 2010.) Because its premiums are directly linked to employment levels and wages, workers compensation insurance is the line most significantly affected by the economic slowdown and nascent recovery. Premiums dropped 27 percent from 2006 to 2010.
  • The combined ratio, the percentage of each premium dollar spent on claims and expenses, was unsustainably high at 115, NCCI says, the same as in 2010, and the highest combined ratio for any of the major lines of commercial insurance for the third straight year. A combined ratio of 100 or higher means that the industry is paying out more in claims than it is collecting in premiums.
  • Faced with the worst results in the past 10 years, according to Fitch Ratings, insurers are raising rates. Industry observers attribute the poor financial results largely to rising medical expenses and recession-related conditions: sluggish premium growth and injured workers’ inability to find work or return to their former workplace, which can increase the duration of claims.
  • Obesity has an impact on the cost of claims, according to a study by the NCCI. The duration of lost income claims was five times greater for the most severely obese workers than for workers who were not obese but filed comparable claims. The data came for insurers operating in 40 states. The study’s findings are similar to those of a 2007 Duke University Medical School report on its own employees.
  • Prescription drug costs now represent about 19 percent of workers compensation medical costs nationwide, according to the NCCI. One cost driver is doctor-dispensed repackaged drugs. The Illinois Workers Compensation Commission has been studying the issue in order to address the significant mark-ups on doctor-dispensed repackaged drugs over pharmacy-dispensed drugs. The commission found that drug repackaging firms often obtain a new National Drug Code number with a much higher unit price. One workers compensation group found that the average repackaged drug costs $115, a 236 percent increase over the average price of $48.65 for the same drugs not repackaged. The commission proposed that drugs dispensed outside of a licensed pharmacy be billed at the average wholesale price plus a dispensing fee of $4.18. The change was adopted by the state’s Joint Committee on Administrative Rules in November 2012. Currently, three states, Massachusetts, New York and Texas, do not allow physicians to dispense repackaged drugs and other states are considering such a move.
  • The Workers Compensation Research Institute (WCRI) recently published a study of the impact of a change in the law in California in 2007. Critics of proposed regulations on doctor-dispensed repackaged drugs feared that injured workers would not receive needed medications if doctors stopped dispensing them when it was less profitable to do so. Data from California show very few doctors stopped prescribing (55 percent before the law passed as compared with 53 percent three years later) so injured workers had similar access to medications but at a lower cost.
  • Another cost driver is the growing long-term use of narcotic painkillers. A new study by WCRI, Longer-Term Use of Opioids, found that nearly one in 12 injured workers who were prescribed opioids were still on the drugs three to six months later, highlighting a problem that contributes to overuse: failure of doctors to implement recommendations for drug testing and psychological evaluation, two steps that might help reduce the abuse of such drugs. A report from the insurance broker Lockton notes that opioids account for about 25 percent of workers compensation prescription costs and 35 percent for claims over three years old. Indirect costs to society include workers’ failure to return to work because they are addicted to the drugs. The Lockton study says there should be an evaluation of the validity of continuing to prescribe opioids when medical reports do not indicate progress in work and life skill functions and a reduction in pain.
  • State activities
  • California: At the end of August on the last day of the 2012 session, legislators passed SB 863, a bill developed by labor groups and some large self-insured employers that have been meeting since last fall to put together a legislative plan. Supporters claim that the measure will produce savings of $880 million, more than enough to offset the $610 million in increased payments to workers receiving permanent disability benefits. However, while praising the reforms, industry observers said it is too early to say whether the savings projected will actually occur. In the past, reform legislation has sometimes produced unintended results such the reduction in benefits for permanently injured workers that came about as a result of the 2004 reforms pushed by former Gov. Arnold Schwarzenegger. The California Workers Compensation Bureau said in October that it expected savings of 4.4 percent on 2013 policies, somewhat less than its earlier estimate of 4.9 percent.
  • At the end of November, State Insurance Commissioner Dave Jones approved a 2013 advisory rate increase of $2.56 per $100 of payroll for policies renewing or starting on or after January1, 20132. The commissioner explained his action by acknowledging the “steady and dramatic” increase in the cost of the state’s workers compensation system. He noted that insurers are currently paying out more in claims than they are collecting in premium and that the state cannot afford to overestimate the potential savings the new law will produce.
  • New York: Data from the Workers Compensation Research Institute (WCRI) shows that the reforms enacted in 2007 are beginning to achieve some of their goals, particularly bringing maximum disability benefit levels for injured workers more in line with national averages. The 2007 law also reduced the time injured workers receive permanent partial benefits, established medical treatment guidelines and required limits on prices for pharmaceutical products. The WCRI notes that the cost of pills covered by the pharmaceutical fee schedule has decreased by 10 to 20 percent.
  • Oklahoma: Business groups and regulators are again pressing lawmakers to consider ways of lowering the cost of workers compensation, which in some cases is as much as five times higher than in neighboring states, according to the state’s Chamber of Commerce. Insurance Commissioner John Doak has said that the high costs are pushing employers to think about relocating. The high costs are attributed by some legislators to the adversarial nature of the system, which provides lawyers with incentives to drive a workers disability rating higher to increase lost income benefits. Oklahoma’s level of attorney involvement is 50 percent higher than the national average.
  • In 2012, a bill that would have allowed employers with more than 50 workers that met certain criteria to opt out of the state’s workers compensation system failed because small businesses feared that the thresholds would exclude them, see also State Funds, below.
  • Insurance industry observers said that under the earlier opt-out plan, employee benefits would have been reduced substantially. Disputed claims would have been subject to mandatory arbitration or mediation and employers would have been able to avoid the Workers Compensation Court and state insurance and workers compensation regulation.
  • Oklahoma is one of a handful of states where the courts run the workers compensation system. Legislation modifying the court system and instituting other cost saving measures was passed in 2010 and 2011 but critics, including those promoting the current opt-out plan, say the system is still too expensive. Among the options being considered for the 2013 legislative session are an opt-out system with essentially no thresholds and an administrative system with a three-member Workers Compensation Commission to replace the current court-based system. The commission would be made up of a doctor, an attorney and an insurance professional with five years of experience in dealing with workers compensation issues. Gov. Fallin has called the system’s high costs an obstacle to job creation.
  • Under the 2012 proposal, employers that opted out would have had to provide an alternative benefits plan that included medical, disability and death benefits for injured workers and that would comply with ERISA, the Employee Retirement Income Security Act of 1974, the federal law that sets minimum standards for most pension, welfare and health plans offered by private industry. The legislation would have made the ERISA-compliant plans the exclusive remedy for opt-out companies, preventing workers from suing their employers in state court. The exclusive remedy is at the heart of the workers compensation social compact, see the introduction to this report. In Texas, the only state to allow employers to opt out of the workers compensation system, nonsubscribers, employers that elect not to participate, are fully liable under the tort system for workplace accidents and can be sued for negligence.
  • Texas: Major reforms were enacted in 2005 that transferred responsibility for workers compensation from a commission to the Texas Insurance Department, improved access to healthcare and advice for injured workers, promoted return-to-work programs, created medical treatment guidelines and raised injured workers’ benefits.
  • The department publishes a biennial report on system improvements. Highlights of the 2012 report indicate that since 2003 to the end of 2011 rates have decreased almost 50 percent; the number of days lost from work due to work-related injuries fell from an average 97 days (median 26 days) in 2004 to 6.0 weeks (median 21 days); and the amount of time needed in 2011 to resolve medical disputes dropped significantly, with fee disputes taking 197 days instead of 335 days as they did in 2005, pre-authorization disputes 20 days instead of 59 and retrospective medical necessity disputes 31 days instead of123. The percentage of employers that participate in the program (i.e., became subscribers, see Background section) rose from 62 percent in 2004 to 67 percent in 2012. Only an estimated 19 percent of Texas employees (about 1.7 million workers) were employed by non-subscribing employers.
  • State Funds, Competitive Funds: Following the successful change over in West Virginia from a state-controlled workers compensation system to a private competitive market, several states, including Arizona, Colorado and Oklahoma, all of which have workers compensation entities with some degree of state oversight that compete with the private market, have been looking into some form of privatization. Some impetus for the sale of these entities is the poor local economy and the resulting budget deficits.
  • Other states, such as Maryland, have been raiding the policyholder surplus of their state workers compensation funds to add to their states’ general funds. In May 2012, to end this practice, Maryland lawmakers agreed to privatize the State Fund, the largest workers compensation insurer in the state, converting it into a private company, Chesapeake Employers’ Insurance Co., effective October 2013.
  • In Arizona, the legislature has agreed to privatize the State Compensation Fund, requiring the transaction to be completed by 2013. The fund had a market share of 31.5 percent in 2009, according to the state’s department of insurance.
  • In Colorado, Pinnacol Assurance, a quasi-mutual company with almost 60 percent of the market, is also exempt from premiums taxes. A proposal to turn it into a mutual insurer that would also be the insurer of last resort was submitted to the governor in November 2011. The governor set up a task force composed of various stakeholders to review the proposal and make recommendations. Negotiations are continuing. An earlier recommendation from a legislative committee failed to gain support.
  • In Oklahoma CompSource, which insures about 35 percent of the market, has a 5 percent advantage over private insurers because it does not pay premium taxes. A legislative task force studying the options voted 5 to 4 in favor of creating a mutual company, but the idea was dropped when opponents said that it would result in higher premiums for small businesses. Most of the businesses in the state are small, with 98 percent having fewer than 100 workers and 75 percent having fewer than 10, according to the State Chamber of Oklahoma.
  • In Washington State, which has a monopolistic state fund, a ballot initiative that would have led to opening the market to private competition was defeated in the November 2010 elections. Voters rejected the initiative, I-1082, by a wide margin. The initiative was spearheaded by the Building Industry Association of Washington and endorsed by the National Federal of Independent Business. It would have created a task force on private competition to draw up legislation and make recommendations.
  • In Ohio, which also has a monopolistic state fund, there has also been interest in allowing some form of competition from private insurers. In November 2009 the Senate voted to create a task force to evaluate the current system, compare it with competitive systems in other states and review the options. At a hearing held in August 2010, the president of the Insurance Information Institute, Robert Hartwig, suggested that the state’s monopolistic system is out of keeping with economic reality. There is no other type of liability insurance in the United States where the state is the sole provider of coverage although states have had ample opportunity to create such a system. Ohio voters rejected a ballot initiative on privatization in 1981. Ohio has the largest monopolistic state fund in the nation. It would require a constitutional amendment to totally privatize Ohio’s system.
  • Meanwhile, in November 2011, the state introduced a new rating plan under which employers who adopt “best practices” aimed at reducing workplace injuries and getting workers back on the job faster can save money. Studies show that injured workers in Ohio take longer to get back to work than in other states, with the percentage who return within a year dropping from 75 percent to less than 69 percent over the past four years.
  • The move to privatize comes at a time when state funds are growing. According to a new Conning Research & Consulting study, Workers Compensation State Funds: Evolution of a Competitive Force, state-backed workers compensation funds operate in 25 states and account for one-quarter ($11.3 billion in premiums) of the workers compensation market. While they generally have higher losses than private insurers (they are often the market of last resort, insuring high risk businesses that cannot find coverage in the private marketplace) these are offset by higher investment income and operating results comparable to private insurers, the study found. State funds also work closely with other government agencies, such as state occupational and health and safety associations, to reduce injuries.
  • The Residual Market: Market share of the residual market pools serviced by NCCI, which had been dropping, increased from 4.6 percent in 2010 to 5 percent in 2011. Premiums grew by 13 percent, reversing a trend of declining residual market premiums that began in 2005, according to NCCI. However, the pools remain small.
  • Workplace Deaths and Injuries: Bureau of Labor Statistics (BLS) preliminary data show that 4,609 workers were killed on the job in 2011, slightly fewer than in 2010 (4,690) but far fewer than in 2008, when there were 5,071 workplace fatalities. The death rate for 2011 per 100,000 workers was 3.5, the same as in 2010 and 2009. Many experts attribute the significant drop over the last few years to the poor economy. Fewer people were working last year in jobs where many of the fatalities typically occur such as construction. Fatal accidents declined to 770, the lowest level since 2003. Fatal injuries for this group declined 48 percent from the high reported in 2006.
  • Workplace injuries requiring days off work have declined significantly each year since 2002 when the BLS first started using current reporting requirements. BLS data show the rate per 10,000 full time employees was 117 in 2011, statistically unchanged from 2010. The median number of days off work was eight, the same as last year.


Competitive with Private Insurers Exclusive
Arizona* Maine Oklahoma North Dakota
California Maryland Oregon Ohio
Colorado Minnesota Pennsylvania Washington
Hawaii Missouri Rhode Island Wyoming**
Idaho Montana Texas  
Kentucky New Mexico Utah  
Louisiana New York    

*Scheduled to be privatized by 2013.
**Compulsory for extra hazardous operations only. Employers with nonhazardous operations may insure with the state fund or opt to go without coverage.



As of September 2012
  Type of Law Threshold for Compulsory Coverage
State Excluded (b) Voluntary (c) Compulsory Time Worked Earnings Other
AL   X        
AK     (d)      
AZ   X        
AR   X        
CA     X 52 hours during 90 days prior to injury or exposure to disease Or $100 during 90 days prior to injury or exposure to disease Excludes a household worker employed by the worker's parent, spouse or child
CO     X 40 hours per week or 5 days per week    
CT     X 26 hours per week    
DE     X   $750 per 3 months  
DC     X 240 hours during quarter    
FL   X        
GA   X        
HI     X   $225 per every quarter during preceding 12 months  
ID   X        
IL     X 40 hours per every week for 13 weeks during year    
IN   X        
IO     X   $1,500 during 12 weeks prior to injury  
KS     X     Employer payroll over $20,000 in prior year for all workers
KY     X     2 employees, 40 hours per week
LA X          
ME   X        
MD     X   $750 per quarter  
MA     X 16 hours per week    
MI     X 35 hours per every week for 13 weeks during preceding 52 weeks    
MN     X   $1,000 in any 3 month period of current or previous year  
MS   X        
MO   X(e)        
MT   X        
NE   X        
NV   X        
NH     X      
NJ     X(f)      
NM   X        
NY     X 40 hours per week, non-farm    
NC   X        
ND   X        
OH     X   $160 per quarter  
OK     X     Employer payroll in preceding year of $10,000 per worker
OR   X        
PA   X        
RI   X        
SC     X     4 employees per employer; payroll more than $3,000 in previous year
SD     X 20 hours per week for more than 6 weeks in 13 weeks    
TN   X        
TX   X(e)        
UT     X 40 hours per week    
VT   X        
VA X          
WA     X     2 employees; 40 hours per week each
WV   X        
WI   X        
WY X          

(a) Domestic workers include household workers such as babysitters, housecleaners, gardeners, etc.; in some states excludes family members.
(b) Domestic workers are specifically excluded from the workers compensation system.
(c) Employers are permitted to provide workers compensation coverage voluntarily.
(d) Except for part-time babysitters and noncommercial cleaning persons.
(e) Elective or optional.
(f) Coverage is voluntary for domestic workers but on an elective basis, i.e., an employer may elect, in writing, prior to an accident, not to be subject to the law. However, this requirement renders the law compulsory in practice. In New Jersey, homeowners insurance policies must contain provisions covering domestic workers.

Source: "Workers Compensation: Exposure, Coverages, Claims,"
ISBN #0-923240-12-8. Standard Publishing Corp., Boston, MA. All rights reserved; PCI.



The Workers Compensation Social Contract: The industrial expansion that took place in the United States during the 19th century was accompanied by a significant increase in workplace accidents. At that time, the only way injured workers could obtain compensation was to sue their employers for negligence. Proving negligence was a costly, time-consuming effort, and often the court ruled in favor of the employer. But by the early 1900s, a state-by-state pattern of legislative proposals designed to compensate injured workers had begun to emerge.

Wisconsin enacted the first permanent workers compensation insurance law in 1911 (New York had enacted a law a year earlier but it was found unconstitutional), and by 1920 all but eight states had enacted similar laws. By 1949 all states had a workers compensation system that provided compensation to workers hurt on the job, regardless of who was at fault. The costs of medical treatment and wage loss benefits were the responsibility of the employer which were paid through the workers compensation system. As part of the compromise that made the employer liable for work-related injury and disease costs regardless of fault, the employee gave up the right to sue the employer for injuries caused by the employer's negligence.

The scope of workers compensation coverage has broadened considerably since its early beginnings. In 1972, states amended their laws to meet performance standards recommended by the National Commission on State Workmen's Compensation Laws. Many states took action not only to expand benefits but also to make the coverage applicable to classifications of employees not previously covered.

However, compensation levels are not uniform. In some states benefits are still inadequate, while in others, they are overly generous. Some states were slow in adopting the National Commission's guidelines and have still not embraced the entire package of 19 recommendations published in 1972. Many states exempt employers with only a few workers (fewer than five, four or three, depending on the state) from mandatory coverage laws. A major benefits issue still to be resolved in some states is the imbalance between levels of compensation for various degrees of impairment; permanent partial disabilities tend to be overcompensated and permanent total disability undercompensated.

Some coverage is provided by federal programs. For example, the Longshoremen's and Harbor Workers Compensation Act, passed in 1927 and substantially amended in 1984, provides coverage for certain maritime employees and the Federal Employees' Compensation Act protects workers hired by the U.S. government.

Employers can purchase workers compensation coverage from private insurance companies or state-run workers agencies, known as state funds. In 20 states, according to a Conning study, “Workers Compensation State funds, Evolution of a Competitive Force,” state funds compete with private insurers and in four states, the state is the sole provider of workers compensation insurance. (See list at the end of Recent Development section of this report.) Along with residual market pools, many state funds also function as the insurer of last resort for businesses that have difficulty getting coverage in the open market.

The only state in which workers compensation coverage is truly optional is Texas, where about one-third of the state’s employers are so-called nonsubscribers. In the event of a serious accident, those that opt out of the system can be sued by employees for failure to provide a safe workplace. The nonsubscribers tend to be smaller companies, but the percentage of larger companies opting out is growing. Some 25 percent of the state’s workers were employed by nonsubscribers in 2008, compared with 23 percent in 2006.

Some businesses finance their own workplace injury benefits through a system known as self-insurance. Large organizations with many employees can often estimate the cost of routine types of injuries. Self-insurance, along with large deductibles, which are in effect self-insurance, now account for more than one-third of traditional market premium. Put another way, workers compensation accounts for more than 40 percent of the alternative market, see also Captives report. Businesses that self-insure their workers compensation losses must prove that they are financially able to do so. They usually protect their assets by purchasing insurance coverage for catastrophic losses or losses in excess of a specific threshold.

About nine out of 10 people in the nation’s workforce are protected by workers compensation insurance. Laws vary by state for domestic workers, see chart, and at least 15 states do not require employers to provide workers compensation coverage to migrant and seasonal farm workers.

How the System Works: Workers compensation systems are administered by the individual states, generally by commissions or boards whose responsibility it is to ensure compliance with the laws, investigate and decide disputed cases, and collect data. In most states employers are required to keep records of accidents. Accidents must be reported to the workers compensation board and to the company’s insurer within a specified number of days.

Workers compensation covers an injured worker’s medical care and attempts to cover his or her economic loss. This includes loss of earnings and the extra expenses associated with the injury. Injured workers receive all medically necessary and appropriate treatment from the first day of injury or illness and rehabilitation when the disability is severe.

To rein in expenditures and improve cost effectiveness, many states have adopted cost control measures, including treatment guidelines that spell out acceptable treatments and diagnostic tests for specific injuries such as lower back injuries and fee schedules that set maximum payment amounts to doctors for certain types of care.

Most claims are medical only, but lost-time claims, those with both medical and lost income payments, though few, consume most resources. Claims are categorized according to the degree of impairment—partial or total disability—and whether the impairment is permanent or temporary. Cash benefits can include impairment benefits and, when the impairment causes a loss of income, disability or wage loss benefits.

Impairment can be defined in several ways. Payments may be based on a schedule or list of body parts covered and the benefits paid for a loss of that part. For injuries not on the schedule, benefit payments may be calculated according to the degree of impairment or the loss of future or current earnings capacity, often using the American Medical Association’s definitions.

Most states pay benefits for the duration of the injury. But some specify a maximum number of weeks, particularly for temporary disabilities. For workers with a total disability, the benefit amount is some percentage of the worker’s weekly wage (actual or state average). Cash benefits may not be paid until after a waiting period of several days.

Costs to Employers: Costs to employers include premiums, payments made under deductibles and the benefits and administrative costs incurred by employers that self-insure or fund their own benefit program. The percentage of total compensation costs that workers compensation premiums represent fluctuates. In the mid-1950s, private sector employers paid an average 0.5 percent of payroll for workers compensation. By 1970 this figure was 1 percent, escalating steeply in the 1980s and 1990s to a record high in 1994 of 2.99 percent. However, there is a wide variation in costs among states and industries, so that the highest rated (the inherently riskiest) groups could pay several hundred times that of the lowest rated (safest) groups, as a percentage of payroll. Also taken into account is the firm’s own safety record.

Insurance, particularly commercial insurance, is a cyclical industry marked by hard and soft markets. In 2000 as the economy expanded, premiums started rising, ushering in the hard market, when demand outstrips supply. In 2007, with a generally soft market for most types of commercial insurance and a weakening economy, premiums began dropping again. From December 2007 to mid-2009, as the recession caused payroll, the basis for computing workers compensation premiums, to drop significantly (3.6 percent) workers compensation insurers saw premiums contract. In fact, the recent recession had the most serious impact on workers compensation in terms of payroll in 60 years. In the recessions of the 1970s and 1980s, the impact was less severe because of continuous wage inflation. Inflation was not a factor in the 2007-2009 recession.

Claim Costs: As mentioned earlier, there are two components to workers compensation claims costs: payments for lost income, which are usually linked to a state’s average weekly wage, known as indemnity costs, and payments for medical care. Two decades ago, indemnity costs made up the greater part of total losses. In 1986 indemnity costs represented 55 percent of the total. By 1996 indemnity and medical had changed places, with indemnity at only 48 percent of losses. In 2008, as medical care costs continued to rise, indemnity accounted for 42 percent.

Growth in workers compensation medical costs for the most part has been much steeper than in the healthcare industry as a whole. The annual average rate of increase in workers compensation medical care costs was 3.9 percent from 1991 to 1995. Since then the rate of increase has more than doubled and, in most years, was more than twice the rate of increase in the medical Consumer Price Index (CPI). Between 2002 and 2007, the medical cost per lost-time claim -- where the employee was forced to take time off work because of the injury as opposed to just seeking treatment for the injury—increased by 6.7 percent compared with an increase of 4.0 percent in the medical CPI. However, in 2009 workers compensation medical care costs increased by only 2 percent, compared with a rise in the medical care CPI of 3.4 percent.

NCCI Holdings suggests that much of the difference between the cost of a healthcare claim and a workers compensation claim is due to the volume, duration and mix of services used by injured workers and group health claimants.

But while the size of claims (dollar amount) has been climbing due to the increasing cost of medical treatment, the number of claims filed (frequency) has been dropping steadily as insurers and their policyholders focus on safety. The frequency of lost-time claims dropped by 54.9 percent from 1991 to 2008. NCCI also attributes recent declines in the frequency of accidents to the use of robots, which reduce workers' exposure to hazardous activities; power-assisted devices that reduce physical stress, lighter and stronger materials; ergonomic designs that reduce strains; and cordless tools, which reduce the incidence of tripping over cords. Frequency declines, which first showed up among small employers are now evident also in large firms.

Insurance company financial results often report profitability in terms the combined ratio (the percentage of each premium dollar spent on claims and expenses). The combined ratio for workers compensation is reported in two different ways: by calendar year and by accident year. In 2008 the calendar year combined ratio started to deteriorate, moving from 99 in 2007 to 100 in 2008. The accident year combined ratio deteriorated more sharply going from 92 in 2007 to 101 in 2008, according to the NCCI. The accident year combined ratio hit a peak of 140 in 1999.

Calendar year results reflect claim payments and changes in reserves for accidents that happened that year or earlier. Insurance companies have to set aside reserves for accidents that have happened but where claims have not been settled. Workers compensation claims may not be settled for many years, if the accident victim needs increasingly more treatment, for example. Accident year results, in that they include only losses from a specific single year, may present a better picture of the industry's performance at a given point in time.

Reducing Costs: Workers compensation system costs are rarely static. Reforms are implemented and then, over time, one or more element in these multifaceted systems get out of balance. Soon employers and legislators complain that the cost of coverage is hurting the state’s economy by reducing its ability to compete with other states for new job-producing opportunities.

In the 1980s, with a view to increasing competition within the insurance industry in order to bring down rates, legislation was introduced in more than a dozen states to change the method of establishing rates from administered pricing, where rating organizations recommended rates that included expenses and a margin for profit, to open competition. Now insurers base their rate filings on more of their own company's specific data, rather than using industrywide figures in such areas as expenses and profit and contingency allowances. Rating organizations still provide industrywide data on "losses"—the costs associated with work-related accidents, which help small companies that lack access to large amounts of data.

More recently, states have begun to disband Second Injury Funds. Set up mostly after World War II, these funds were designed to protect employers that hire disabled workers from having to bear the full cost of the first disability when an injury that further disabled the worker occurred in their workplace. Many believe that these funds are now unnecessary in that passage of the Americans with Disabilities Act has made the protection they afford to disabled workers redundant. The Act protects injured workers from discrimination by employers. At least 10 states have repealed laws covering Second Injury Funds.

The aim of the workers compensation system is to help workers recover from work-related accidents and illnesses and to return to the workplace. A fast return to work is desirable from the employer and insurer’s viewpoint, lowering claim costs for the insurer but benefiting the worker too.

Research shows that the faster the insurer receives notice of an injury and can initiate medical treatment, the faster the injured worker recuperates and returns to work and the less likely he or she is to seek out an attorney for help in dealing with a claim. Studies also suggest that most people want to return to productive employment as soon as possible. Electronic communication has enhanced procedures to speed up the "first notice of claim" filing process to the workers compensation administrative office.

There are two important aspects to facilitating the return-to-work process. One involves getting the most effective medical care as soon as possible and reducing the emotional stress that may follow an accident. To help get medical treatment to the injured worker faster, some insurers help employers file promptly a "first notice of injury" with the state agency responsible for overseeing the workers compensation system, a step which triggers the claim process.

The other is to encourage employers to improve communications, first about the workers compensation system in advance of accidents—people who know what to expect and who receive medical attention promptly will recuperate faster and are less likely to turn to an attorney for help—and second when injured workers are off work, so that they feel that they are still part of the workplace team and are anxious to return. Insurers have also strengthened communications among all the parties involved in the case so that each knows how treatment is progressing.

Another aspect of the return-to-work process is successful reintegration into the workplace. Insurers help employers assess the injured workers’ needs and capabilities and encourage them to let workers know, in advance of any injury, that they will try to modify work activities to accommodate those who are permanently disabled.

Long absences from work can have a lasting negative impact on workers’ future employment opportunities and thus on their economic well-being. A study of injured workers in Wisconsin by the Workers Compensation Research Institute found that the duration of time off work and periods of subsequent unemployment are lower for injured workers who return to their pre-injury employer than for those who change employers.

Another factor pushing up costs in some states is the amount of attorney involvement. Workers compensation programs were originally intended to be "no-fault" systems and therefore litigation-free. Attorney fees are either set by law or subject to approval of the courts or regulator. Computations may be based on an hourly rate, a percentage of the total award, a specific percentage according to the level of the hearing on the case, or a sliding scale with percentages decreasing with the size of the award. Many states have caps on attorney fees.

Although attorney involvement boosts claim costs by 12 to 15 percent, because claimants must pay attorneys' fees there is generally no net gain in the actual benefits received. Overall, attorneys are involved in 5 to 10 percent of all workers compensation claims in most states—but in as much as 20 percent in systems where the number of disputes is high and in roughly a third of claims where the worker was injured seriously.

The involvement of an attorney does not necessarily indicate formal litigation proceedings. Sometimes, injured workers turn to attorneys to help them negotiate what they believe is a confusing and complex system. Increasingly, states are trying to make the system easier to understand and to use.

The workers compensation system plays a major role in improving workplace safety. An employer's workers compensation premium reflects the relative hazards to which workers are exposed and the employer's claim record. About one-half of states allow what is known as "schedule rating," a discount or rate credit for superior workplace safety programs.

In addition, a majority of states now provide for optional medical deductibles in workers compensation insurance policies as a cost-saving measure and, in some states, allowable deductible amounts were raised. (Deductibles reduce premiums because they lower an insurer's administrative expenses, which, for small claims, make up a disproportionately large portion of the cost of settlement.) Deductibles also encourage greater safety-consciousness on the part of the employer who must pay the deductible amount.

In some states, insurers must provide accident prevention services to employers. In others, employers are required by law to set up safety committees and other programs to deal with unsafe conditions in the workplace and assign specific responsibility for creating, monitoring or overseeing workplace safety to a governmental agency.

Some businesses are taking a more radical approach to bringing costs under control through coordination of workers compensation, healthcare and disability benefit plans. The integration of workers compensation and other employee benefit programs is a broad concept that ranges from a simple marketing approach that promises savings from using the same insurer for both coverages to programs that offer a managed care approach to the management of all types of disability, regardless of whether they are work-related.

Besides limiting overlapping programs and streamlining administration, proponents say such a change addresses the increasing difficulty of distinguishing between work- and nonwork-related injuries and illnesses, such as injuries due to repetitive motion and stress claims.

It also improves productivity since nonwork-related disabilities are managed with the same focus of getting the employees back to work as work-related cases, and at the same time addresses the potential for reporting injuries that occur outside the workplace as work-related to reduce the employee's out-of-pocket costs. Workers compensation pays for all reasonable medical treatment without deductibles and co-payments, as opposed to healthcare, where the policyholder incurs some out-of-pocket costs.

Residual Markets: Residual markets, traditionally the market of last resort, are administered by the NCCI in 29 jurisdictions. In some states, particularly where rates in the voluntary market are inadequate, the residual market provides coverage for a large portion of policyholders. In 1993 they represented about 26.5 percent of the total workers compensation market (excluding employers who are self-insured). Since that time, the NCCI has taken steps to reduce the size of the residual market by creating financial disincentives to obtain coverage from it.

Terrorism Coverage: Since the terrorist attacks of September 11, 2001, workers compensation insurers have been taking a closer look at their exposures to catastrophes, both natural and man-made. According to a report by Risk Management Solutions, if the earthquake that shook San Francisco in 1906 were to happen today, it could cause as many as 78,000 injuries, 5,000 deaths and over $7 billion in workers compensation losses.

Workers compensation claims for terrorism could cost an insurer anywhere from $300,000 to $1 million per employee, depending on the state. As a result, firms with a concentration of employees in a single building in major metropolitan areas, such as New York, or near a “trophy building” are now considered high risk, a classification that used to apply only to people in dangerous jobs such as roofing. Faced with the possibility of a huge death toll costing millions of dollars and the threat of insolvency as a result, all but the largest insurers are limiting coverage. This is forcing some employers to raise their deductibles, in effect self-insuring part of the risk, and to deal with several insurers to reduce the potential maximum loss for each.


Issues Report, a yearly overview of the workers compensation system, National Council on Compensation Insurance.

"Property/Casualty Insurance Facts," Insurance Information Institute, annual publication.

"Analysis of Workers' Compensation Laws," U.S. Chamber of Commerce, annual publication.

Publications from the Workers Compensation Research Institute, Cambridge, MA.

© Insurance Information Institute, Inc. - ALL RIGHTS RESERVED




Illinois Workers Compensation Insurance and the Work Comp Contractor Credit

Illinois Workers Compensation Insurance and the Work Comp Contractor Credit

For Illinois Contractors, one of the most important reasons for managing your Experience Modification Factor is the Illinois Contractor Classification Premium Adjustment Program (CCPAP).  In order to qualify for this credit your Work Comp Mod must be 1.00 or less.  AND, this credit can be as high as 40% which can be the difference in your bottom line for securing new business.

It's important to understand that controlling your long term costs take more than just getting an Illinois Workers Compensation Insurance quote at your policies renewal every year.  If you're struggling with your mod and would like to learn more on how to control it - give me a call.   Contact Info Link 

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

CCPAP Webinar






Illinois Workers Compensation Rates have been published for 2013

The NCCI has published the Illinois Workers Compensation rates for 2013. If your interested in knowing the advisory rate for your specific classification code feel free to give me a call or shoot me an email.

We offer highly competitive Workers Compensation programs for Chicago Illinois area employers.


Dan Zeiler

Zeiler Insurance Services



Illinois Workers Compensation Experience Rating Formula To Change

 Illinois Workers Compensation Experience Rating Formula To Change

The National Council on Compensation Insurance (NCCI) has announced changes in the formula that is used to calculate experience modifiers for employers in most states and Illinois is one of them.  Currently claims under $5,000 are weighted heavier then claims over $5,000…  in the work comp world this $5,000 mark is called the “split point”.

 In this change the split point will be incrementally increased from the current $5,000 to $10,000 in 2013 and $13,500 in 2014. Thereafter, the split point will be tied to an inflationary index that will start at $15,000.  NCCI cites medical inflation as the reason for the changes, and a need to make premiums more reflective of an employer's loss experience.  For example, in the first year of these changes, contractors with no losses greater than $5,000 should see a drop in their experience modification rating (EMR) factor, while those with a relatively large number of losses approaching or exceeding $10,000 will see an increase in their Experience Modification Factor.  There is no cap on how much an employer's EMR can increase in a given policy year.

These changes will impact all industries but perhaps the construction industry more than most due to minimum EMR requirements imposed on contractors by many project owners just to qualify to bid on a project.  Furthermore, it could affect eligibility for the contractors credit premium adjustment program (CCPAP), which provides discounts to contractors who pay higher than the state average hourly wage for employees in certain construction classifications. In Illinois contractors must have an EMR of 1.0 or lower to be eligible for the CCPAP discount.

Unfortunately, because the experience rating period covers prior years' losses, contractors will not have the opportunity to implement strategies that could reduce the impact of the changes before they become effective. However, contractors do need to prepare for the changes by calculating an estimate of their new EMR and account for the difference in premium in their 2013 budget.  If you feel that these changes may adversely affect your work comp mod we can work up an estimate of the new mod to see the full impact.


For more detail on the subject the NCCI has produced a few videos on the subject:

Mod Change Introduction – 8 minutes






Detailed review of Experience Mod Changes – 24 minutes






Feel free to contact me with any questions.

Dan Zeiler




The 2012 Illinois Workers Compensation Insurance Rates are published

I've received numerous calls from Chicago area businesses looking for the 2012 Illinois Workers Compensation Insurance Rates.   If you are interested in knowing the advisory rate for your classification code this year feel free to give me a call.  Or,  if you're interested in an Illinois Workers Compensation Insurance quote let me know.

Dan Zeiler

Illinois Workers Compensation Policy

A quick review of the workers compensation policy declarations (Dec) page prior to renewal and upon receipt of the renewal policy can turn up opportunities to save premiums or avoid disputes with the insurer. Take a close look at the following items and give some thought to the possibilities.

  • Estimated payrolls -- If they look high, you could be giving your insurer a free loan. If they are too low, then expect severe sticker shock from an additional billing at the time of the premium audit.
  • Classifications -- Are these the jobs the employees are actually performing?
  • Discounts and Rates -- Are they similar to your last policy?
  • Credits -- Are they similar to last year? Have any credits been eliminated?
  • Deposit premium for the policy period -- Can you pay a smaller deposit premium and make monthly payments?
  • Insured's information -- Check the first section, usually listed or shown as Item 1, and verify information about the named insured, such as name, address, and entity type. Make sure that this matches your company's info exactly. (There can be major problems when the policy has a slightly different name or address.)
  • Coverage provided -- Item 3 of the Dec page details information concerning coverage. Check Section A, Workers Compensation Insurance, and Section C, Other States Insurance. If your company is operating in a state that is not listed, you could end up paying a WC claim out of pocket.
  • Premium calculation -- Usually Item 4, does this look right to you? Does it look similar to last year's policy?
This exercise only takes about 20 minutes, maximum, but could result in corrected errors that provide significant savings for your company.  We help employers in the Chicago Illinois area control their workers compensation costs.  Let us know if we can be of any help to you.

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.


Illinois Workers Compensation Premium Audit

There's many employers who's workers compensation policy period ends 12/31.  So basically...  it's PREMIUM AUDIT SEASON!



  • Utilize a spreadsheet
  • From your Illinois Unemployment Quarterly Reports – total each employee’s earnings for the year.
  • Slide each employee into a job duties column (make sure you’re specific as to the duties which correspond to the appropriate work comp classification).
  • Adjust for Excluded Payroll (overtime, tips, certain allowances, contributions to benefit plans, etc.)
  • Have your Certificates of Insurance ready for any subcontractors
  • Cap owners pay to the appropriate number
There's a little more to the process but you get the idea...  


Check Your Workers Comp Policy Dec Page Closely at Renewal

A quick review of the workers compensation policy declarations (Dec) page prior to renewal and upon receipt of the renewal policy can turn up opportunities to save premiums or avoid disputes with the insurer. Take a close look at the following items and give some thought to the possibilities.

  • Estimated payrolls -- If they look high, you could be giving your insurer a free loan. If they are too low, then expect severe sticker shock from an additional billing at the time of the premium audit.
  • Classifications -- Are these the jobs the employees are actually performing?
  • Discounts and Rates -- Are they similar to your last policy?
  • Credits -- Are they similar to last year? Have any credits been eliminated?
  • Deposit premium for the policy period -- Can you pay a smaller deposit premium and make monthly payments?
  • Insured's information -- Check the first section, usually listed or shown as Item 1, and verify information about the named insured, such as name, address, and entity type. Make sure that this matches your company's info exactly. (There can be major problems when the policy has a slightly different name or address.)
  • Coverage provided -- Item 3 of the Dec page details information concerning coverage. Check Section A, Workers Compensation Insurance, and Section C, Other States Insurance. If your company is operating in a state that is not listed, you could end up paying a WC claim out of pocket.
  • Premium calculation -- Usually Item 4, does this look right to you? Does it look similar to last year's policy?
This exercise only takes about 20 minutes, maximum, but could result in corrected errors that provide significant savings for your company.  We help employers in the Chicago Illinois area control their workers compensation costs.  Let us know if we can be of any help to you.

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 via this link.

CCPAP Webinar

The Adobe Flash Player is required to view the above module.

Illinois Workers Compensation Premium Audit

Found another simple mistake yesterday on a worker’s compensation premium audit. An owner/officers payroll was slid into the governing work comp class. This is a janitorial service client of mine in the city of Chicago and the error was simple to find.  It was simple to find because we completed a premium audit package for the insurance auditor.  We had a summary to refer back to once the final audit was completed by the insurance company.




  • Utilize a spreadsheet
  • From your Illinois Unemployment Quarterly Reports – total each employee’s earnings for the year.
  • Slide each employee into a job duties column (make sure you’re specific as to the duties which correspond to the appropriate work comp classification).
  • Adjust for Excluded Payroll (overtime, tips, certain allowances, contributions to benefit plans, etc.)
  • Have your Certificates of Insurance ready for any subcontractors
  • Cap owners pay to the appropriate number
There's a little more to the process but you get the idea...