An Open Letter To All Illinois Candidates For Governor (including the incumbent)

So Illinois is going to have an election this fall for governor, and one of the issues this time (as has often been the case) is likely to be Workers Compensation. Our incumbent governor has been raising what, to this observer, seem to be rather tired and doctrinaire points about how the cost of Workers Comp in Illinois is higher than in neighboring states (Indiana in particular). But Governor Rauner's prescriptions always seem to be limited to doing things to reduce benefits to injured workers or limit the incentives for attorneys to help injured workers obtain fair benefits.

And so I want to make my recurring suggestions that this is not the only way (or even a good way) to reduce the cost of Workers Compensation for many Illinois employers.

As I have testified before the Illinois legislature on more than one occasion, for most Illinois employers the real cost of Workers Compensation is the cost of Workers Compensation insurance.
Only very large employers can qualify to be truly self-insured (and even many of those employers find that large deductible insurance policies may be better suited to their needs.)

Most employers have to purchase an insurance policy from a private insurance company to meet their statutory requirements under the Workers Compensation Act. And in Illinois, insurers have a free hand to charge what the market will bear--and then some, in many cases.

Some reasonable insurance reforms could help to significantly reduce the cost of Workers Compensation insurance for many employers, without further reducing the benefits paid to injured workers.

Right now, many smaller employers end up in the Assigned Risk Plan, where manual rates and premium charges are much, much higher, and service from insurers and agents are much, much lower (often non-existent.)

There are existing mechanisms that Illinois government could utilize to provide a lower cost alternative for many employers who suffer the costs of Assigned Risk coverage even though their loss record is good. The State of Illinois could create a PEO.

The existing insurance system already allows PEOs (Professional Employer Organizations) to offer Workers Compensation coverage to companies in Illinois. Currently, these are all private companies of varying size and reliability. But there is nothing to prevent the state of Illinois from establishing its own PEO and then offering coverage at something less than Assigned Risk rates to employers who meet reasonable criteria.

Some care and effort would have to be exercised to prevent poor underwriting from destroying such a PEO a few years down the road, but a PEO would be able to achieve exactly the same results as the government-sponsored insurance fund that was proposed by the legislature last year (and which Governor Rauner vetoed) but would be much easier to establish and implement because it would involve a working partnership with an already-existing insurance company. (That's how PEOs work-they obtain coverage at lower cost for their clients by negotiating what amount to volume discounts with an insurance company.)

The state could even target certain economically distressed areas, through this PEO mechanism, with some discounts on Workers Compensation rates based on geography (along with the aforesaid underwriting practices.)

So if you wanted to encourage manufacturers to return to Chicago, or Cairo, you could offer additional discounts to such companies who set up shop there. There is tremendous flexibility within the existing insurance rating regulations (for all practical purposes, there are no limitations on rating and pricing flexibility) so such things would be completely possible.

By partnering with a responsible and experienced insurance company through a PEO mechanism, Illinois could provide a significant reduction in Workers Compensation cost for many employers, without having to reinvent the wheel and without the potential temptations of a government-run insurance fund (politicians in other states have sometimes found claims reserves from such funds to be a very tempting target to be siphoned for other uses.)

It's a modest proposal, as they say--but one that could be done and which would create a tool for economic development in Illinois without hurting workers.

If I could only get someone to listen.

Roofing Salespeople--the Disputes Continue

One of my first emails of the New Year involves proper classification of salespeople/estimators for a roofing company. In the past, it was common for such workers to be assigned to the outside sales class, Code 8742, at a relatively inexpensive rate. But in recent years, insurance companies have increasingly insisted that, because such workers must, at least occasionally, go up on a roof to inspect it, their payroll belongs in the roofing code (at a vastly higher rate.)

It's a tricky issue, complicated by some unique rules that apply. One might think that, as long as the roofing company kept track of specific time such workers spent up on the roofs, then only a small percentage of the payroll would go into the more expensive class. But Code 8742 is non-premium divisible--that means it's an all or nothing classification, and the moment a workers spends any time whatsoever doing something that doesn't qualify for 8742, all of the payroll must be placed into the more expensive class.

This is different than the rules that usually apply to construction type classifications, which usually allow for such premium division (as long as the specific hours spent in each are recorded properly.)

Insurers often don't explain these find points very well when the coverage begins, so this can become a sore point after an audit is done and the insurer moves payroll out of the outside sales class and into the roofing class (at a substantial increase in premium.)

Rules on this can vary. California rules developed by WCIRB specifically say outside sales people for roofing companies belong in Code 8742, but the NCCI rules don't have such specific language.

Certainly, workers who are routinely going up on roofs represent a work exposure that would appear to be greater than the typical outside salesperson. But with advances in technology, not all salespeople/estimators have to physically go up on a roof.

With satellite photos, drones, and sophisticated estimating software, it is possible for roofing salespeople/estimators to do their work without going up on a roof. In such cases, the application of the roofing classification would not be warranted--but resolving that point may take some time and effort with a stubborn insurer.

In cases where estimators must still occasionally physically go up on a roof, perhaps a more reasonable accommodation would be to change the rules so that premium would be divisible between occasional roofing exposure and outside sales. But in our current age of Workers Comp deregulation, I don't get the impression that the insurance industry is in a hurry to address this problem.