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It's been three years since sweeping reforms to Illinois workers compensation laws reduced the costs for treating injured employees. But those in the construction industry say they have yet to see meaningful reductions in premium costs. In fact, some firms still are watching their workers compensation rates creep up — even as Illinois Gov. Pat Quinn touts a 19.3% drop in such costs statewide since 2011.
“Everybody agrees costs have come down, but nobody is reporting that premiums have gone down,” says David Menchetti, a partner in Chicago law firm Cullen Haskins Nicholson & Menchetti P.C., who represents injured workers. “For the overwhelming majority of employers in the state of Illinois, premium is all that matters.”
“There are a lot of moving parts,” says Chris Irle, a managing director in the Chicago office of London-based Aon Risk Solutions, a commercial risk brokerage firm. “When (costs) come down, that doesn't necessarily translate into workers compensation premium savings.” Mr. Irle says that for years, insurance companies were losing money on Illinois polices. In 2010, they paid out $1.21 for every $1 earned from a premium. Insurance programs have become profitable, paying out 94 cents for every dollar earned in 2013.
“That tells you insurance companies are making money on these insurance programs,” says Michael Latz, chairman of the Illinois Workers Compensation Committee, the state agency that handles workers' compensation issues.
In July, the governor's office said Illinois employers could see an overall reduction in premiums of up to $143 million in 2015, bringing total savings to more than $450 million since the 2011 reforms, which attempted to reduce costs by implementing a 30% reduction in the state's workers' comp medical fee schedule.
But in construction — an industry fraught with risk of injury — many firms say their rates have been relatively static, likely because of previous claims. “Maybe they look at us as one big accident,” says Paul Hellermann, president of Bulley & Andrews L.L.C., a Chicago-based construction firm. Insurance providers “play a little more conservatively.” After two years of rising premium costs, his firm got aggressive with its safety program and saw its rate go down by 8.1% in 2014, although it had to assume a larger deductible.
For Chuck Taylor, director of operations at Englewood Construction Management, a Lemont, Illinois-based company known for high-profile projects along Michigan Avenue such as the American Girl store, Zara and Spiaggia restaurant, the high cost of workers' compensation insurance was a principal reason the firm went into construction management instead of putting its own employees to work on a construction site. Today, workers' compensation costs make up 2% of Englewood's payroll expenses, compared with 5% in 2008.
Still, Mr. Taylor says the high cost of insurance runs upstream. “It has reduced our internal costs, but the subcontractors still feel the pain directly. So it is certainly reflected in their pricing.”
Post-reform, Illinois still is the fourth-most-expensive state for workers' compensation premiums, with companies paying an average of $2.83 for every $100 in payroll, according to the Oregon Department of Consumer and Business Services, which tracks such data. Prior to reforms, Illinois ranked third.
While the overhaul cut medical reimbursements substantially, many employers and advocates say it hasn't translated to lower premium rates. The state's Mr. Latz says he's unsure why construction firms in particular are not reaping the benefits of the reforms.
The National Council on Compensation Insurance, a rating bureau in Boca Raton, Florida, that advises states on insurance rates, recommends that insurers for Illinois' construction industry lower their workers' comp rates by 4.8% in 2015, the least of any industry group. As a comparison, NCCI advised insurers of office and clerical workers to drop rates by 7.6% in 2015. While these figures are based on a number of factors, including historic data, they are only recommendations. It's up to insurance companies, often case by case, to lower the cost of policy premiums.
Despite being vigilant about safety for his 30 employees, Bill Glass, owner of Klass Electric Co., a commercial and industrial electrical contractor in Elk Grove Village, Illinois, says his workers' comp insurance costs have risen 2% since the reforms. “I don't know if we'll ever see the premium go down,” he says. “An increase is an increase.”
Meribah Knight writes for Crain's Chicago Business , a sister publication of Business Insurance.
A construction worker can't file a negligence action against his supervisor despite the fact that the exclusive remedy provisions of Missouri's workers compensation law didn't cover co-workers at the time he was injured, a divided Missouri Court of Appeals ruled Tuesday.