How Prework Screening Can Help Reduce Workers' Compensation Claims

Look up the term “prework screening” and chances are you’ll find information about how drug testing, job history verification, criminal background checks and Social Security number traces can help protect your company from hiring questionable employees. But how can prework screenings help reduce workers’ compensation claims? The answer is simple–test prospective employees (who have accepted a conditional job offer) for their physical ability to do the jobs they will be assigned. It's important to do this as soon as possible, because umbrella liability doesn't apply here- so you could be at risk! 

Consider the experience of a policyholder in the automotive industry that was experiencing recurring injuries on its supply line. After instituting a prework screening program for physical abilities, they noticed a reduction in claims. Other companies EMC works with are benefitting from prework screening when hiring temporary workers and ensuring employees at recently acquired locations are right for the job. 

Six Steps to Effective Prework Screenings 

  1. Target the jobs to be tested—Review injury data (such as your injury records or your claims records) to identify problem jobs that should be screened first. Look for jobs affected by lost time from injuries such as musculoskeletal/back injuries, multiple injuries and trauma, and jobs where tasks include lifting and carrying, balancing, use of ladders, overhead reaching, repetitive motion and postutres, awkward postures or climbing.
  2. Analyze the physical demands—For the jobs targeted in step one, identify and measure the physical demands. EMC can help with this process or you can consult with the physical/occupational therapist who will design the test.
  3. Have the physical therapist develop the prework screening test features and pass/fail criteria.—Provide the job description with the physical demands outlined to the physical therapist. The therapist will then identify the prework screening test features and develop the actual performance tests. You should receive written documents from the therapist for your review.
  4. Establish procedures before testing begins (with the therapist)—Answer the following questions before you begin testing: 
    • Where will testing occur?
    • How will applicants be referred to this location?
    • What will happen if an applicant’s resting blood pressure and/or heart rate exceed safe levels for testing?
    • How will test-related injuries be handled?
    • How will pregnant or disabled applicants be tested?
    • How will the test results be handled?
    • How will the test failures be handled?
    • What information is to be shared with the employer?
  5. Test existing employees—To ensure that your prework criteria are as accurate as possible, test it on employees who already hold the jobs you have selected for prework screening. Use these results to correct any problems before job applicants are tested.
  6. Review outcome and follow-up data—You should receive periodic updates from your physical therapist on the pass/fail rates, the test items most frequently failed and any information regarding significant differences in fail rates based on gender, age or ethnic groups. Review this information to modify the testing process if necessary. Consider tracking your work-related injury costs before and after starting the prework screening program. This can help your organization decide whether or not to continue or expand the program. For more information on worker's compensation, please read here: How to Report Workers' Comp Claims.


Hiring Considerations for Prework Screening Providers 
Retaining the services of a qualified prework screening provider is the most costly element of your prework training program. It is also one of the most crucial element for an effective program. When selecting a screening provider, convenience will certainly be a factor, but it shouldn’t be the only factor. You should pick a provider who: 

  • Is properly trained and experienced in administering prework screening and exam design methods
  • Understands the workers’ compensation system
  • Is a timely and skilled communicator
  • Is in close proximity to your job site(s)
  • Has demonstrated experience in both occupational and non-occupational therapy treatment
Some questions you should ask the screening provider include:
  • Do you have experience in conducting prework screening exams and functional job analyses? You may ask for written examples.
  • Are you knowledgeable about how the Americans with Disabilities Act (ADA) and Equal Employment Opportunity Commission legally influence the appropriate administration of prework screening exams? For more information about ADA visit
  • Are you willing to visit our workplace to observe, review, confirm and identify the essential job tasks and the related physical demands of those tasks in preparation for designing reliable test procedures?
  • Can you provide screening exams at multiple locations if needed?
  • What test orientation materials do you provide to the job candidates before undergoing a prework screen? You may ask for written examples.
  • Are you prepared to offer test accommodations to job candidates if needed/requested?
  • Have you accommodated a job candidate during a prework test? If so, please cite examples of accommodations you have made.
  • How do you communicate the results of the prework screen?
  • What is the cost to develop both the exam criteria and administration of each prework screening test? What is the cost to complete functional job descriptions? What is the estimated time to conduct the exam?
  • Describe your testing methods and reporting format (make sure these methods are compatible with the needs of your organization).
  • Do you have written medical standards and criteria defining when to start and stop a test for safety reasons related to the job candidate? Can you provide a copy of these?
  • How do you handle a potential injury during testing? Cite examples.

If you have questions or would like more information, call any of our 3 locations in the Chicago-land area today. Our customer service representatives are eager to share their knowledge and speak with you about any insurance related topic. Zeiler Insurance is an independent insurance agent and has been providing quality customer service for 101 years in our Alsip, Chicago, and Gurnee locations. Our goal is to help you understand insurance as well as provide you with the most competitive insurance rates in the industry. Whether you are a customer or just want more information, let us help you with our years of expertise in the insurance business.

708.597.5900 x134



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 Rates and Injury Codes

When analyzing overall work comp costs and rates,  it's important to know how injuries affect your Illinois Workers Compensation Insurance modification factor.  To take full advantage of the Illinois ERA credit it's important to know what these injury codes stand for. 

An injury code is assigned to each claim by your insurer based on the type of injury. Each code is described in the following table.

IJ Code





Permanent total disability


Major permanent partial disability


Minor permanent partial disability


Temporary total or temporary partial disability




Contract medical or hospital allowance


Compromised death (California only)


Permanent partial disability




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




Workers Compensation Risk Shift as Jobs Return

Here's an interesting article provided buy business insurance magazine:

Link to the story:

A modest rebound in post-recession hiring has experts keeping an eye on work-related injuries associated with new employees as well as those returning from extended unemployment.

Though workers who change employers typically are at higher risk for injury, sources say rehired employees also can pose safety concerns when returning to their former employers after months or even years off the job.

“Those employees who are coming back are at just as high a risk for injury as those people who are brand new and trying to learn,” said Mark Noonan, managing principal at Integro Insurance Brokers Ltd. in Boston.

The national unemployment rate was 8.3% in January, according to the U.S. Bureau of Labor Statistics, the lowest jobless rate since February 2009. The number of job openings increased somewhat in 2011 after two years of declines (see chart).

That modest job growth appears to be contributing to a recent uptick in work-related injuries. The frequency of workers compensation claims increased 3% in 2010, according Boca Raton, Fla.-based NCCI Holdings Inc.

The ratings and research organization said the increase—the first since 1997—likely was due in part to the “firming job market and (a) modest increase in employment since the start of the recovery in the middle of 2009.”

Texas Mutual Insurance Co. has seen employer payrolls increase and workers comp claims rise during the past six months, a spokesman said.

Much of the growth for the Austin, Texas-based insurer of last resort is coming from the oil and gas industry, which is “booming” right now and hiring new and laid-off workers, he said.

“Here in Texas, there's no doubt in our mind that the economy is rebounding,” he said.

NCCI Chief Economist Harry Shuford said workers are at greatest risk of injury during their first year with a company, regardless of whether they change positions within that firm. The risk level drops once an employee has been with a company for five years.

Employees who are learning to perform new jobs correctly pose much of the injury risk, Mr. Shuford said.

So far, it's difficult to determine whether the injury clock resets for workers who leave and then return to a company. However, Mr. Shuford said, he believes that rehired workers could pose more safety concerns than those who continued on the job.


Illinois Workers Compensation Quote

Illinois Workers Compensation quotes...   we have very competitive work comp rates but it's important that we do more in order to control your long term costs:

  • We make sure you are getting the best workers compensation mod rate possible.
  • We make sure your open reserves don’t adversely affect your mod.
  • We will help prepare a workers compensation premium audit before the auditors arrives.
  • We help establish a working relationship with occupation health clinics.
  • We help prepare job descriptions to avoid bad hires.

Let me know if we can help you with your workers compensation program.

Dan Zeiler

Illinois Workers Compensation Rates

In an article posted by Best’s Review in their November issue…   they’re reporting concerns with the claim vs. premium experience in workers compensation.    In summary:


  • Calendar-year combined ratio increased 7 points to 118.1% in the last 10 years.
  • Premiums have declined 30% since 2005.
  • Negative ratings for insurance companies have outpaced positive ratings.

What does this mean for the average business owner? Premium increases in workers compensation rates!!!   It’s time to setup procedures to help control your costs.



Our agency helps employers in the Chicago Illinois area to control and monitor Work Comp Premiums. Give me a call if I can be of any assistance for your business.

Dan Zeiler


Illinois Workers Compensation Contractor Credit

Just spoke with the NCCI (National Council on Compensation).  Due to the recent work comp reform bill and pending rate changes;  Workers Compensation Contractors Credits in Illinois are not being processed.  I'll keep you posted.

Hiring to Reduce Work Comp Risk

We welcome the news that in February employers hired workers at the fastest pace in nine months. The jobless rate is at a nearly 2 year low of 8.9% and employment rose across almost all sectors including factory, construction and service jobs. This is a sign that the economic recovery is finally on its way. 

Finding new employees will be the trend for many employers. We want encourage them to focus on finding the right people for their open positions and to avoid the hiring mistakes that can lead to injuries, claims and increased workers compensation costs. The process that we would recommend is:

·         Resume/applicant screening

·         Interview

·         Background check

·         Conditional Offer of Employment

·         Post-offer pre-employment exam

When a candidate successfully completes the initial hiring process (screening, interview, background check) and is deemed to be a good fit for the position, the job offer is made. The offer should be made in the form of a Conditional Offer of Employment. Employment is conditioned upon the candidate being physically able to perform substantially all of the essential job duties of the position with reasonable accommodations for any mental or physical disability. The use of a Conditional Offer of Employment can help employers hire the best person for the job instead of hiring the next workers compensation claim!

Post-offer pre-employment exams allow medical professionals to screen a hire before they start the job and verify that they are able to perform the physical demands of the job for which they are hired. The timing of the exam and the manner in which it is performed is critical. 

An effective hiring process will include a relationship with an occupational clinic or other medical resource that can efficiently schedule and complete the exam so that there is minimal delay. The employee will have been supplied a medical questionnaire to complete before the exam so that the medical personnel will know any pertinent history. This is where prior injuries can be flushed out. 

The medical examiner will need a detailed job description in order to know the job requirements. (See blog on job descriptions.)  The exam should be tailored to the job for which the employee is hired.   The exam may also include an initial drug screen if the employer has a drug policy in place. Once the exam is complete, the medical professional will advise the employer as to the employee’s ability to perform the job and any accommodations that the employee may need. 

Following a clear and consistent hiring process that includes a post-offer pre-employment exam will help to reduce work comp claim potential and decrease work comp premiums in the long run. Follow the link below for guidance from the EEOC for employers on what questions can be asked and how exams can be performed.

Here’s to a healthier economy, a healthier workforce and contolling work comp premiums!


Illinois Work Comp - Know the difference between PPD amd PTD

Know the Difference Between Permanent Partial Disability and Permanent Total Disability


When an employee reaches maximum medical improvement (MMI) but still has medical issues from his/her on the job injury or occupational disease, the employee will normally be eligible for permanent disability benefits. The Illinois Workers Compensation statute recognizes two types of permanent disability benefits. While the names vary by state, the most common used names are:

1.      Permanent partial disability (PPD)

2.      Permanent total disability (PTD)




PPD benefits are paid to employees who have a permanent physical impairment but can return to some type of work. The amount of PPD benefits can be either a percentage of a body part, a percentage of the body as a whole, or a set scheduled amount.   The calculation of the benefit amount will depend on which of these three types of ratings is given.




When the treating physician and the IME doctor (Independent Medical Evaluation doctor selected by the workers compensation company) agree the employee will never be able to return to any type of employment, the employee is given a disability rating of 100%. With a 100% whole body disability rating, a PTD rating is almost automatic. 


The adjuster will take the 100% disability rating for the whole body and multiply it by the number of weeks the state statutes allow for whole body. If the statutes states the whole body is worth 400 weeks, a 100% rating equals 400 weeks. The adjuster would then multiply the number of weeks by the PTD compensation rate. 


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. 


Illinois Workers Comp Benefits from Electronic Health Records

On June 3, 2010, Health and Human Services' Secretary Kathleen Sebelius announced funding for three Illinois entities to expand the use of health information technology. The funds are part of the $2 billion allotted to HHS’ Health Resources and Services Administration (HRSA) under the American Recovery and Reinvestment Act of 2009.  Illinois entities have received a total of $14,222,596 in funds through HRSA grants since last year.

In February, Governor Quinn signed Executive Order 2010-1 creating the Office of Health Information Technology that launched the development of a statewide Health Information Exchange.  For the full press release:

The use of health information technology allows health care providers to more easily share and access a patients health information. Through the use of shared information the hope is that we will see:

  • Improve health care quality and outcomes
  • Improve patient safety
  • Reduce health disparities
  • Reduce medical errors and duplicative services
  • Enhance coordination of patient care among providers
  • Reduce or eliminate paper
  • Control the cost of health care
  • Enhance public health and disease surveillance
  • Promote greater efficiency

From the perspective of an employer, the possible result of shared health information technology is all positive. Enabling a treating provider the opportunity to see if an injury is pre-existing is obvious, but access to the history and objective diagnostics that have been performed in the past is key. The reduction in duplicative diagnostics and the efficient delivery of all records should result in savings for all. 

In the effort to reduce Illinois workers comp rates, the benefits of the expansion of Health Information Technology are promising.  


Supervisor’s Role in Managing Work Comp Rates (part 2)

We know that supervisor’s role on the floor or jobsite is critical to maintaining a safe place to work and limiting unsafe behavior but their role after an injury occurs is also critical.


Getting the proper care after the accident is, of course, the main concern. Calling an ambulance or escorting the employee to your predetermined occupational health expert immediately after an injury is the first step.   Early involvement with your occupational health professional can directly impact the duration of the treatment, overall medical cost and length of lost time. 


Reporting the incident is also critical so that the employer’s work comp coordinator can make sure the insurance carrier is on notice and, again, that the employer’s occupational health clinic is involved.  Timely reporting will also allow for a proper investigation of the circumstances surrounding the claim. Tracking the time to report a claim to management is a recommended benchmark for every supervisor. 


An influential factor in the post-injury outcome is the health of the relationship between the employee and supervisor before the accident. According to a DuPont study, an employee’s perception of the employer and management is directly related to the outcome of a work comp claim. Employee satisfaction surveys are one way to measure employee fulfillment.


The communication between the supervisor and employee after the injury is important. The employee must know the employer is concerned about their well-being and is anxious to have them back. After the accident, keeping in touch with the injured employee will keep work “alive” in the employee’s mind. The employee’s importance and the supervisors/employer’s genuine care and concern for the employee will be voiced. All too often supervisors don’t know what to say or are afraid to contact an injured employee. With some communication the employee can be put as ease and the supervisor can let them know how much they are missed. 


If an employee returns to work on a light duty basis, the quality of the relationship will again be important.  Accommodating the employee’s limitations and finding a valued role for the employee to fill while recuperating is essential. 


Supervisors need training so that they know the step by step process of post-injury behavior. Written guidelines can give supervisors a go-to guide in the case of an accident. Role playing and education can help to reinforce the action that needs to be taken. Engaging supervisors on how their role has a direct impact on limiting work comp costs and maintaining profitability is essential.  


Supervisor's Role in Controlling Work Comp Rates (part 1)

Managing to control Employer Workers Compensation costs is traditionally approached with a focus on preventing accidents and injuries from occurring. Loss control and safety managers are busily working to make factories and worksites safe and OSHA compliant. 


Surprisingly, 90% of injuries are caused by unsafe behavior, not unsafe conditions. The foremost cause of lost time injuries is overexertion. Ironically, OSHA compliance standards do not address this issue. 


Supervisors are the critical link between unsafe behavior and a productive, healthy workforce.  Making sure the safety goggles are on, the helmet is worn or breaks are taken at the proper times is their critical responsibility. Sometimes though, incentives for production can run contrary to safety standards. Supervisors might be motivated to ignore rules put in place to protect workers. 


Having supervisors actively engaged in both production and safety is a key component to controlling work comp premiums. A great way to engage them is to illustrate the premium impact a lost time work comp claim will have over a 3 year period. If you then translate that cost increase to the amount of product that has to be produced, sold and the amount of profit that has to be made just to recoup the additional expense, you will get their attention. They then can understand the very real cost of unsafe behavior!


Illinois Workers Compensation Contractor Credit

Contracting Classification Premium Adjustment Program (CCPAP)


Contractors qualify to receive a work comp premium credit that is based on an employer’s average wage level. Generally, the higher the wage, the higher the credit.


Florida was the first state to approve the service back in 1984. Higher wage paying employers, represented by the construction and trade unions, felt they were being discriminated against due to the fact they had the same base workers compensation rate as lower wage paying employers. Employers with bigger payrolls paid a higher premium because the premiums is based on each $100 of payroll.    


The big kicker here is that you need a Workers Compensation Experience mod that is at or less than a 1.00 factor.   My April 8th post talked about opportunity costs and the pitfalls of not controlling your workers comp.  With workers comp premiums being a large portion of your variable costs with any job.  An additional 35% – 60% credit can make the difference of winning or losing that next bid.


Here's a recent Experience Mod and CCPAP Factor from one of our STELLAR clients - 32% Experience Mod Credit and a 40% Contractor Credit.


When Workers Compensation Rates Decline

Here’s an interesting article written by Frank Pennachio.  Frank is our team guru at the Work Comp Advisor Group.   Feel free to contact me with any questions.

Three pitfalls employers should avoid when workers compensation rates decline

Posted on March 11, 2010 by WorkCompEdge Blog Editor

by Frank Pennachio, WorkCompEdge Regular Contributor

With few exceptions, workers compensation rates have been declining across the country for several years.  Declining rates appear to offer employers relief, especially during these tough economic times.  But declining rates can be deceiving and ultimately lead to greater total workers compensation costs. Here are three pitfalls employers should be alert to avoid when workers compensation rates go down.

Pitfall #1 – Assuming that when rates decline, premium costs will decline.

Paradoxically, declining rates may actually drive up the employer’s costs and pose greater risks to their business.  Many employers are often surprised to learn that a reduction in rates does not always mean a reduction in direct workers compensation costs.

As regular readers of this blog probably know, rates alone do not determine the premium cost. An experience modification factor (mod) adjusts the cost of insurance to the individual loss performance of an employer. The workers compensation premium is calculated to be:

Rate x $100 Payroll x Experience Modifier = Premium Cost

The calculation of the mod factor itself is somewhat complex, but its overall purpose is to compare an employer with similar employers in the same industry classification. If an employer’s past losses are lower than average, a credit rating reduces the premium. Conversely, if past losses are higher than average, a debit rating can actually increase costs in spite of lower rates.

If an employer’s injury costs increase, then their mod will likely increase and not only nullify the benefit of the lower rates, but actually increase the employer’s costs.  In addition, when rates go down, the employer’s injury costs are expected to go down, as well.  If an employer’s injury costs stay the same or go up, then it is almost certain the mod will increase even more.


Pitfall #2 – Focusing only on direct costs

Employers tend to focus more attention on injury prevention when workers compensation rates are increasing and less when rates are declining.  Yet injury prevention and management is critical regardless of the direction rates are trending.  Rates have little to do with ultimate workers compensation costs.

Workers compensation insurance premiums are the direct costs of funding workplace injuries.  However, when an injury occurs, the indirect costs can be much greater.  These indirect costs include:

  • overtime wages
  • temporary labor
  • increased training
  • supervisor time
  • production delays
  • unhappy customers
  • increased stress, and
  • property or equipment damage.

While it’s difficult to track some of these costs directly back to a workers compensation claim, they indisputably add to the overall indirect costs. However, employers recognize if they lose a key employee to an injury, then their business will suffer.  An employee injury is costly, regardless of the direct insurance costs, and lower premiums have no impact on indirect costs.

Pitfall #3 – Failing to recognize the threat to business

 It’s increasingly common for employers bidding on new business to find that their injury record and experience mod are important factors in whether or not they win a contract.  This is most prevalent in the construction industry; however, it’s emerging in other industries as well.  Suppliers are finding that they are not allowed to deliver goods to a business if their experience mod is above an acceptable number.

If an employer cannot secure new business or loses existing contracts, then lower workers compensation premiums are useless.  As stated above, lower premium rates imply an expectation that employers will experience fewer injuries and lower costs.  If they do not, then their experience modification goes up.  Their increased experience mod may now limit their ability to grow or sustain their business.

As you can see, lower rates can act like a Trojan horse and pose great dangers for the employer.  It seems ironic that an employer can be endangered by lower workers compensation premiums, but it is true.


Illinois Workers Compensation Insurance - FREE CD OFFER

Just to remind you....  we are offering a free CD on the Eight Secrets of Workers Compensation Insurance.  The highlights include:
  • Be Insurance Premium Audit Ready
  • Claims Management
  • Don't Hire Problems
  • Incorrect Workers Compensation Experience Modification Factors
  • Better Account Management
Click here to request your free copy or visit our website at :

Learn how to control your Work Comp Rates.

Workers Compensation Experience Mod

Have you ever been presented with a report showing the effect a single claim has on your workers compensation experience modification factor?   Our report will not only show the difference on your rate...  it'll also show you the work comp premium you will pay during the three years the claim appears on your mod.

This report will demonstrate that insurance companies
don't pay claims - they just finance them for you

The report helps to put into perspective the importance of controlling the claim.