Today’s Agenda

• Types of Injuries• Illinois WC Benefits• Workers Comp and Employers Liability Policy• WC Rating Bureaus and Pricing Environments• Rating Plans for WC Policies• Payroll vs. Hours Worked• Industry Trends

Types of Injuries

• Fatal• Permanent Total• Permanent Partial• Temporary Total• Medical Only

Illinois WC BenefitsIllinois WC Law First Effective 5/1/1912

State Average Weekly Wage (SAWW) = $717.24

Survivors’ Benefits

Burial Benefit: $4,200

66 2/3% of AWW w/ COLA

Min Weekly Benefit: Lesser of $358.62 or AWW

Max Weekly Benefit: $956.32

Max Lifetime: Greater of $250,000 or 20yrs

Remarriage “Award”: 2yrs Lump Sum w/o children

Illinois WC Benefits (continued)Permanent Total Disability

66 2/3% of AWW w/ COLA

Min Weekly Benefit: Lesser of $358.62 or AWW

Max Weekly Benefit: $956.32

Max Lifetime: Unlimited

Temporary Total Disability

66 2/3% of AWW

3 Workday waiting period/14 day retroactive period

Min Weekly Benefit: Lesser of $113.40* or AWW

Max Weekly Benefit: $956.32

*Assumes Married, 2 children

Illinois WC Benefits (continued)Permanent Partial Disability

60% of AWW Min Weekly Benefit: Lesser of $88.90* or AWWMax Weekly Benefit: $516.15 or $956.32**Duration:

Non-Schedule: % of disability * 500 wksSchedule: Thumb 70 wks

Hand 190 wks Foot 155 wks Leg 200 wks Hearing Both Ears 200 wks

*Assumes Married, 2 children**$956.32 paid if amputation or enucleation occurs

Workers Compensation and Employers Liability Insurance Policy

Information PageGeneral SectionPart One - Workers Compensation InsurancePart Two - Employers Liability InsurancePart Three - Other States InsurancePart Four - Your Duties if Injury OccursPart Five - PremiumPart Six - Conditions

Information Page

1 Describes insured

2 Shows coverage period

3 Summarizes coverages

4 Premium estimate

Classification, estimated payroll, rate

General Section

The Policy

Who is Insured

Workers Compensation Law

State

Locations

Part One - Workers CompensationA. How This Insurance Applies

Bodily injury by accident must occur during the policy period

Bodily injury by disease must be caused or aggravated by conditions of your employment. The employee’s last day of exposure to the conditions causing or aggravating such bodily injury must occur during the policy period.

B. We Will PayBenefits required by workers compensation law

C. We Will DefendD. We Will Also Pay

Insured’s expensesBonds and interest on judgments

What is “Workers Compensation Law”?

• What WC Law is:– WC Law in each state listed in Item 3A– Any amendments to the law during the policy

period

• What WC Law is not:– Federal WC Law– Federal occupational disease law– Any law that provides nonoccupational disability

benefits

Part One - continuedE. Other InsuranceF. Payments You Must Make

Payments in excess of regular benefits required because:Serious or willful misconductHiring an employee in violation of lawFailure to comply with safety regulationsDischarge, coerce or discriminate against employee

G. Recovery From OthersH. Statutory Provisions

Your default or the bankruptcy or insolvency of you or your estate will not relieve us of our duties under this insurance after an injury occurs.

Part 2 -Employer Liability Insurance• Need for coverage

– Third-party-over suits– Care and loss of services– Consequential bodily injury– Dual capacity

• Exclusions– Outside the US or Canada– Liability assumed under contract– Punitive damages for illegally employed person– Bodily injury intentionally caused by insured– Damages from employment practices

Part 2 -Employer Liability Insurance• Exclusions (Continued)

– USLH & Extensions– FELA– Injuries to members of the crew of any vessel

• Limits of Liability– Basic Limits

• $100,000 – BI by Accident, Each Accident• $100,000 – BI by Disease, Each Employee• $500,000 – BI by Disease, Policy Limit

– Increased limits can be obtained for additional premium– NY – Unlimited EL Coverage

WC and Employers’ Liability Policy

Part 3 - Other States InsurancePart 4 - Duties If Injury OccursPart 5 - Premium

Recordkeeping requirementsAdjusted premiums

Part 6 - ConditionsInspectionAssignmentCancellation

Additional Coverages Available by Endorsement

• USLH and Extensions– “F” Classes

– Other Classes

• FELA, MSAWPA, and Admiralty Law– Basic EL Coverage ($25,000 per accident)

– Basic EL Coverage + Voluntary State Benefits

– Basic EL Coverage + Voluntary USLH Benefits

WC Rating Bureaus

• Functions– Develop Loss Costs & Rates– Develop Policy Forms & Endorsements– Advise states on WC issues

• Types– National Council on Compensation Insurance

(NCCI)– Independent Rating Bureaus

Pricing Environments

• Administrated Pricing– Rates are filed by Rating Bureau– Carriers may be permitted to deviate from rates

• Competitive Pricing– Rating Bureau files “Loss Costs”– Carriers load in their own expenses & loss

experience adjustments

Rating Plans for WC Policies

• Guaranteed Cost

• Loss Sensitive– Retrospectively Rated Policies– Large Deductible Policies

Components of a WC Premium

Manual Premium (Exposure * Rate)

Employers Liability Increased Limit

Experience Credit/Debit

Schedule Credit/Debit

Contractors Classification Premium Adjustment Program (CCPAP)

Balance to Minimum Premium

Premium Discount

Expense Constant

Retrospectively Rated Policies

• Final Premium Determined by Insured’s Losses and insurer’s expenses

• Losses are valued @ 18 months and every 12 months afterwards

• Optional Min and Max Premium• Optional Per Loss Capping

Large Deductible Policies

• Deductibles of $100,000 per claim or greater• Policy aggregates can be available• Insurer pays first then recovers from insured• Insurer or TPA handles claims• Cash Flow Advantages• Reduced Tax Liability

Dividend Plans

• Dividends must be declared by the Board of Directors

• Types of Dividend plans– Level

• Flat percentage of premium is returned to the policyholder

• Payout may or may not be dependent on the loss experience of the insured

– Variable• The percentage of premium returned to the policyholder is

determined by the loss experience of the insured

– Retention Plans

Payroll vs. Hours Worked

• Payroll is currently used as the exposure base for WC (except in WA)

• Argument for using Payroll– Inflation sensitive– Indemnity benefits determined by wage level– Easily verifiable

• Arguments against using Payroll– Unfair to employers who pay a higher hourly wage– Indemnity benefits capped @ a percentage of the

SAWW– Medical payments do not vary by wage level

Payroll vs. Hours Worked

• Solutions– Classification Refinement– Experience Rating– CCPAP Credits

Industry Trends

• Flat Loss Costs– Frequency Decrease

• High Degree of Competition

• Federal Intervention

• Assault on Exclusive Remedy

• Rollback on WC Reforms enacted in the early 1990s

Industry Accident Year Results

0%

20%

40%

60%

80%

100%

120%

140%

160%

1991 1992 1993 1994 1995 1996 1997 1998 1999

Accident Year

Los

s R

atio

Net of Mods Gross of Mods