Who has to get Workers Compensation coverage?
state of Advanced
Insurance Management LLC, and although we
help clients from all over the U.S., we have
particular experience and familiarity with Workers'
Comp in our home state. With that in mind, we
thought we would provide a little information about
some of the particulars of Workers Compensation
insurance in the Land of Lincoln.
The Assigned Risk Pool in Illinois
In Illinois, virtually
any business that
uses workers (full or part time) other than the owners
of the company (with over $1,000 in annual payroll) is required to
meet their statutory Workers Compensation obligations by
either getting an insurance policy, or by being approved
as a self-insurer (only practical for large companies)
or by becoming a member of a group self-insurance
program. The major exception is for agricultural
enterprises with less than 400 working days of labor
during any calendar quarter of the preceding calendar
brokers & broker-salesmen who are commission-only sales
people are not considered to be employees under the
Illinois Workers' Compensation Act.
Sole proprietors and partners are not
obtain Workers Compensation coverage for themselves,
but they can choose to obtain coverage for themselves.
Once a sole proprietor or partner (or member of an LLC)
buys an insurance policy that covers other workers,
those owners have to actively elect out of the policy if
they don't wish to be covered by it.
However, if a sole proprietor or a partnership hires
employees, then they must typically obtain valid Workers
Compensation coverage. And remember that, in
Illinois, independent contractors (or
do not have their
may be treated the same
as direct employees in
terms of the Workers Compensation liability for those
who use their services.
So if your business has workers
who are independent contractors, and they do not have
their own Workers Compensation coverage, they may well
be treated as your employees if they are injured in the
course of their work. This also means that your
insurance company may seek to charge you premiums for
independent contractors you
use. To avoid being charged, you must have on file certificates
of insurance that
document that these independent contractors have their
own Workers Compensation insurance in force. Absent
these certificates of insurance or a other valid proof
that they have their own coverage, insurance companies
can get overzealous in seeking to make premium charges
for such workers, even when they are operating their own
independent businesses and are not required to insure
themselves (if they are sole proprietors or partners in
the business, for example.) Sometimes insurers will
seek to make premium charges even when certificates of
insurance are presented, if the insurer alleges that
there was not truly coverage in place for that worker.
This is an area that has been the subject of some
Executive officers of a
corporation can opt out of coverage, if they
wish, but this must be done by specific endorsement to
The Illinois Workers Compensation
Act says that only businesses engaged in
"extra-hazardous" work are subject to the act--but then
goes on to define "extra-hazardous" so broadly that,
effectively, every business is subject to the act except
for some agricultural work.
(Does your business use any
cutting instruments in the course of the work? Then the
business is extra-hazardous. My office uses scissors, a
paper shredder, and one of those paper trimming things
that kind of guillotines a sheet of paper. That makes
my office extra-hazardous in Illinois. Oh, and since
the paper shredder is an electrically powered tool, that
also makes us extra-hazardous.)
How are the premiums calculated?
Since the state essentially
requires most employers to obtain Workers Compensation
insurance (or self-insurance) a program has been
established to make sure that any employer that needs
coverage can obtain it, even if insurance companies
don't want to voluntarily underwrite such insurance.
That program is the Assigned
Risk Plan, or
Pool, and in Illinois there are some unique features
that employers should keep in mind.
First off, rates are
significantly higher in
the Assigned Risk Plan in Illinois than they are in the
voluntary market. The rates themselves are higher,
or 25% higher
than the rates for the same operations in the voluntary
On top of that, Assigned Risk policies have no
Premium Discount. Depending on the size of the
policy, this can add close to another 10% to the cost of
Furthermore, Assigned Risk policies are not
Credits. In the voluntary market, insurance
companies have commonly offered discretionary discounts
ranging from lows of 15% to highs of 50% (at least they
did in the "soft market"--even in the current "hard
market", many insurers still offer significant schedule
Add all these factors together, and the Assigned Risk
Plan policy can often be twice
as expensive as
the same coverage in the voluntary market. Which means
that it is definitely in an employer's interest to get
out of the Assigned Risk Plan as quickly as
Sometimes, small employers end up in the Assigned Risk
Plan without even realizing it. If there is any doubt
about whether or not your company is in the Assigned
Risk Plan, check with your agent. And then start working
to find a way to get coverage in the voluntary market,
if at all possible.
If you can get an insurer to write your Workers
Compensation coverage in the voluntary market, you don't
have to wait until your Assigned Risk policy expires.
There is no penalty to leave the Assigned Risk Plan
before the policy expires (unlike the voluntary market,
where canceling the policy before expiration can have
Workers Compensation premiums are
calculated by assigning classifications to the business
operations (according to a system devised by the NCCI).
Each classification has a particular rate, which is
applied to remuneration (the rate is per hundred dollars
of remuneration). The policy starts out with estimated
remuneration (usually referred to as payroll, but it can
be more than that) and then, when the policy ends,
actual remuneration is determined, and the policy
premium is adjusted by an audit.
Premium is further adjusted, for companies paying $5,000
or more a year in premium, by application of the
Experience Modification Factor. This factor, calculated
annually by NCCI, is based on prior loss and payroll
data of the particular business.
Premium can be further adjusted, in the voluntary
market, with Schedule Credits or Debits. Also in the
voluntary market, the premium is reduced by applying a
Premium Discount factor.
remember, the premium shown when the policy starts is
just an estimate. Final premium will be determined after
the policy ends, and sometimes this final premium can be
significantly higher than the original estimated
premium. We regularly get calls from employers who
have just received a shockingly-high final premium bill
and are at a loss to understand how their Workers Comp
policy that originally had a premium of just $2,000.00
has now generated a final premium bill of $25,000--or
can often help employers by finding and correcting
errors made by the insurance company in computing that
Who regulates Workers Compensation in Illinois?
How Are Premium and Classification Disputes Resolved?
Claims matters are handled by the
Illinois Workers Compensation Commission
(formerly the Illinois Industrial Commission.) This body
resolves disputes regarding proper claims settlements,
and compensability of particular claims.
But disputes regarding insurance coverage (other than
claims) and premium charges are handled by the
Illinois Department of Insurance.
The National Council on Compensation Insurance,
or NCCI, is a private organization but has some
quasi-regulatory authority in Illinois, delegated to it
by statute. NCCI writes the manuals of rules that
determine how premiums are calculated (subject to
approval of the Department of Insurance), how particular
classifications are assigned to employers, calculating
Experience Modification Factors, and administering the
Assigned Risk Plan for Illinois. NCCI also is involved
in administering the Workers Compensation Appeals Board
in Illinois, which rules on disputes involving proper
Workers Compensation classifications.
If Your Company Has Won an Appeal...
Disputes regarding premium
computation are handled by the Illinois Department of
Insurance, often by means of the Workers' Compensation
Appeals Board. This board is administered by NCCI, but
the voting members of the board are not NCCI personnel,
but rather are: one member from the Department of
Insurance; one member from an insurance carrier; and
three members from private industry.
This Board meets quarterly, and hears appeals regarding
classifications assigned by NCCI, as well as other
disputes affecting premiums, such as Experience
Modification Factors and premium audits.
The decisions of the board can also be further appealed
to a hearing officer with the Illinois Department of
Insurance, if needed. It should be noted that only
insureds have a right of appeal to the board (or to the
hearing officer) which means that insurance carriers
must accept decisions of NCCI without having recourse to
the appeal mechanism.
...from the NCCI Appeals board, regarding a change in
classification code, or experience modifier, you may
want to talk with AIM. Because it may be that we can
help you recover refunds from past policies. If you've
won a classification change at the Appeals Board, AIM
may well be able to negotiate refunds going back a
number of years (back to 1984, in some cases). The
insurance system often isn't as responsive as it might
be when it comes to making good such past overcharges.
But AIM specializes in getting back such overcharges for
clients. And since we work on a contingent-fee basis,
there's no cost to have us check to see if we can
produce a refund, as we only earn a fee if we
successfully produce a refund.
Remember, in Illinois it is possible to get refunds of
Workers' Compensation insurance premium overcharges
going back to the1984 policies,
if such overcharges can be properly documented. So if
there has been any change in the classification codes
used to develop the premium for your company in any
policy since 1984, it may bear looking into. AIM will
provide a free consultation to determine if your company
may have been overcharged, and advise you if we can help
recover those overcharges.
There's also a rather unique situation in Illinois that
the courts have created with a
series of decisions that particularly affect contractors
in Illinois (but
can theoretically affect any employer in Illinois) known
generally as Kotecki
related exposures.ki related exposures.
Also, in 2008, there were statutory changes made (and an
Illinois Supreme Court decision) regarding when certain
workers must be classified as employees rather than
independent contractors. The revised statute added new
penalties for employers who improperly classify certain
workers as independent contractors. The Illinois
Supreme Court decision, Roberson v. Industrial
Commission, set criteria to differentiate when
owner/operators in the trucking industry must be
considered employees rather than independent
All of the above relates to Workers' Compensation
premium computation and classifications. For information
about Workers' Compensation benefits in Illinois, we
recommend you go to the Website of the Illinois
Workers Compensation Commission.
Advanced Insurance Management has
Illinois employers reduce
their Workers Compensation insurance premiums since
1987. Although we help employers all across
the U.S.A, we retain particular
rules and regulations about Workers' Compensation
insurance premium charges. AIM
has worked closely with the Illinois
Department of Insurance, we have helped
numerous employers with appeals to the Illinois
Workers Compensation Appeal Board,
All of the above is offered for information purposes
only. We here at Advanced Insurance Management LLC are
not attorneys, so if you have any question regarding
Workers' Compensation law you should contact appropriate