Operating a business that has locations in or headquartered in Illinois affords your company many advantages. From being centrally located in one of the most robust economic environments the world has to offer, to having your choice of a myriad of sports teams to root for. Illinois can be a very advantageous state to house your business operations. Unfortunately, Illinois is one of the non-friendly employer states as pertains to your Workers’ Compensation programs. This brief will attempt to address one of the latest examples of the state’s somewhat penalizing nature.
The recent release of 2011 NCCI Workers’ Compensation rates and supporting rating factors has created a significantly heightened exposure to employers as it relates to larger claims and their impact on the modification factors of employers. Effective January 1, 2011, the new loss limitation factor (large loss cap) has been raised to $370,500. Based on information available at press time of this release, Illinois would have the highest loss limitation factor of any State published for 2011, moving beyond the State of New York. New York’s factor was actually reduced for 2011 from $349,500 down to $281,500.
Since calendar year 2001, NCCI has steadily and aggressively increased the maximum loss limitation factor in Illinois from a limit of $133,000 to the present $370,500. This 278% increase over a 10 year period has magnified the impact a large loss has on the experience modification factor of an individual employer on claims which would have been capped at the lower amount. In the similar period, no other State has experienced a shift of this percentage.
What does this mean to an employer and what steps are necessary to mitigate the impact of this change?
Experience modification factors of employers are based on payroll, rate, and claim experience for three policy periods pre-dating the most recently expired policy period. Each year, as modification factors are updated and revised the new rating elements are included in the calculation. As a result of this change, a loss of $500,000 in year 2009 which had been capped at $318,000 will now be revised to $370,500, thereby having a negative impact on the mod factor.
The increase in loss limit factor also belies the importance of employers in managing and creating awareness of the importance of cost containment and claims management due to the financial impact to the employer on modification factors and ultimately the cost of Workers’ Compensation insurance. Claim management including the monitoring of paid claims and reserves will need to be reviewed regularly with the understanding of the impact of this change.
If you wish to learn more about the change in the rating structure along with an analysis of your firm’s modification and any potential impact, please contact Chuck Naso, Senior Vice President, The Horton Group, at 708.845.3321 or via e-mail at chuck.naso@thehortongroup.com.