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.
In Illinois, virtually
any business that
(full or part time) other than the owners
of the company
(with over $1,000 in annual payroll) is required to
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
The major exception is for
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
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
And remember that, in
Illinois, independent contractors
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
course of their work.
This also means that your
insurance company may seek to
charge you premiums for
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.
these certificates of insurance or a other valid proof
they have their own coverage, insurance companies
overzealous in seeking to make premium charges
workers, even when they are operating their own
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
there was not truly coverage in place for that worker.
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
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, almost every business is
subject to the act except for some agricultural work.
The Assigned Risk Pool in Illinois
Since the state essentially
requires most employers to obtain
insurance (or self-insurance) a program
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 typically 20%
or 25% higher
rates for the same operations in the
On top of that, Assigned Risk policies have
Premium Discount. Depending on the size of the
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 do in a
"soft market"--even in a "hard
market", many insurers
still offer significant schedule
credit for what they consider a
Add all these factors together, and the Assigned Risk
can often be twice
as expensive as
the same coverage in the
that it is definitely in an
employer's interest to get
out of the Assigned Risk Plan as quickly
Sometimes, small employers end up in the Assigned Risk
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
if at all possible.
If you can get an insurer to write your Workers
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
where canceling the policy before expiration can have
How are the premiums calculated?
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,
applied to remuneration (the rate is per hundred dollars
The policy starts out with estimated
remuneration (usually referred to as payroll, but it can
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
a year in premium, by application of the
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
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
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
errors made by the insurance
company in computing that
Who regulates Workers Compensation in Illinois?
Claims matters are handled by the
(formerly the Illinois Industrial
Commission.) This body
resolves disputes regarding proper
and compensability of particular claims.
But disputes regarding insurance coverage (other than
premium charges are handled by the
Illinois Department of
The National Council on Compensation Insurance,
is a private organization but has some
in Illinois, delegated to it
by statute. NCCI writes the manuals of
determine how premiums are calculated (subject to
approval of the Department of Insurance), how particular
classifications are assigned to employers, calculating
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
Workers Compensation classifications.
How Are Premium and Classification Disputes Resolved?
Disputes regarding premium
computation are handled by the
Illinois Department of
Insurance, often by means of the Workers'
Appeals Board. This board is administered by
the voting members of the board are not NCCI
but rather are: one member from the Department of
Insurance; one member from an insurance carrier; and
members from private industry.
This Board meets quarterly, and hears appeals regarding
classifications assigned by NCCI, as well as other
affecting premiums, such as Experience
Modification Factors and
The decisions of the board can also be further appealed
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
must accept decisions of NCCI without having recourse to
the appeal mechanism.
If Your Company Has Won an Appeal...
...from the NCCI Appeals board, regarding a change in
classification code, or experience modifier, you may
want to talk
Because it may be that we can
help you recover refunds from past policies.
won a classification change at the Appeals Board, AIM
may well be able to negotiate refunds going back a
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
clients. And since we work on a contingent-fee
there's no cost to have us check to see if we can
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 the 1984 policies,
if such overcharges can be properly
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
may have been overcharged, and advise you if we can help
There's also a rather unique situation in Illinois that
the courts have created
series of decisions that particularly affect contractors
can theoretically affect any employer in Illinois) known
generally as Kotecki
Also, in 2008, there were statutory changes made (and an
Court decision) regarding when certain
workers must be classified as
employees rather than
independent contractors. The revised statute
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
rather than independent
All of the above relates to Workers' Compensation
and classifications. For information
about Workers' Compensation benefits
in Illinois, we
recommend you go to the Website of the
Workers Compensation Commission.
Advanced Insurance Management has
their Workers Compensation insurance
Although we help employers all across
the U.S.A, we
regulations about Workers' Compensation
has worked closely with the Illinois
Department of Insurance, we have helped
with appeals to the
Workers Compensation Appeal Board,
experts in litigation cases
disputes over Workers Comp insurance premiums, audits,
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