Who are the most expensive workers to insure in Illinois? It’s not roofers or sawmill operators, coal miners or painters. Nor is it loggers, steelworkers or carnies. In 2018, oil and gas drillers paid the highest rates for workers’ compensation in the state.
High risk for severe injury plus a tiny pool of industry players combine to generate rates of $30.61 for every $100 of payroll. (Insurers set premiums based on rates for job types, then adjust prices for individual employers.) That’s nearly 14 times the Illinois median rate for 2016.
The cost of workers’ compensation insurance is a perennial political issue in Illinois. Employers, insurance companies and Republicans like Gov. Bruce Rauner argue that payments for medical care and lost wages are artificially high to enrich doctors and plaintiffs lawyers. Responding to employers, the General Assembly cut payments to doctors by 30 percent in 2011. Even so, rates in Illinois were eighth-highest in the nation in 2016, according to a study, and twice as high as Indiana’s. Insurers reversed losses to report an average profit of 11 percent in 2014. Little wonder that Rauner and the Illinois Manufacturers’ Association are calling for further cost cuts to save jobs.
Oil and gas drillers use the full toolbox to lower the amount they spend on workers’ comp insurance: safety programs, lobbying state government and passing the expense to customers. A few are going further: Pioneer Oil, a producer with an affiliated drilling company, moved to Indiana, and the owner of Les Wilson, a driller in Carmi, about an hour west of Evansville, Ind., is considering whether to follow.
“You have an industry that’s very, very small in the state of Illinois, and it does a very dangerous job,” says Mike Kuykendall, co-owner of Energy Insurance Services in Olney, which specializes in insuring companies working in the Illinois Basin. When it comes to insurance rates, “there’s definitely a roller coaster.”
The roller coaster effect is magnified by the boom-and-bust cycle of the oil and gas industry. Workers’ comp is a fixed cost, while company revenue and profit are tied to the price of oil, which has fluctuated in the last five years from a high of $110.62 a barrel to a low of $26.19.
Drillers operate across the Illinois Basin, a 60,000-square-mile depression stretching across southern Illinois, Indiana and western Kentucky. There’s oil production in 40 of Illinois’ 102 counties, with more than 32,000 oil and gas wells controlled by 1,500 operators. But the industry doesn’t employ many: There were 730 full-time workers in oil and gas in 2017, earning an average $48,000 a year, according to the Bureau of Labor Statistics.
Drillers are even fewer. Hired by producers who lease the land and finance the project, drillers own the rigs that burrow through 2,000 to 4,000 feet of soil and New Albany Shale to extract oil or gas, with a well costing up to $200,000. The subindustry employs 251 in Illinois, with 41 percent clustered in White County, where Carmi is the county seat and the Wabash River forms the state line with Indiana. Both Les Wilson and another major driller, Geo N. Mitchell Drilling, are located there.
With other industries, the cost of paying claims is spread over more employers, Kuykendall says. There may be more injuries in car shops than oil rigs, but there’s also more businesses footing the bill. In drilling, a single large claim—say, a fall from a 100-foot-tall derrick—can have a direct, noticeable impact on premiums the next year.
Workers’ comp insurance rates for the industry actually are 24 percent cheaper than a decade ago. They peaked in 2010 at $54.79.
Perhaps one reason is that around 2008, insurance companies cracked down on safety. When Eric Puntney, owner of Chaney & Karch Insurance Group in Mount Vernon, started in oil and gas insurance in 2001, maybe half his customers offered safety training, he says. Now, almost all of them do. Major insurers like Bitco Insurance, HDI Global and Travelers already required such programs in big oil-producing states like Texas, Oklahoma and Kansas to underwrite policies. The smaller Illinois market may have escaped their notice at first, he says, but that changed.
Who are the most expensive workers to insure in Illinois? It’s not roofers or sawmill operators, coal miners or painters. Nor is it loggers, steelworkers or carnies. In 2018, oil and gas drillers paid the highest rates for workers’ compensation in the state.
High risk for severe injury plus a tiny pool of industry players combine to generate rates of $30.61 for every $100 of payroll. (Insurers set premiums based on rates for job types, then adjust prices for individual employers.) That’s nearly 14 times the Illinois median rate for 2016.
The cost of workers’ compensation insurance is a perennial political issue in Illinois. Employers, insurance companies and Republicans like Gov. Bruce Rauner argue that payments for medical care and lost wages are artificially high to enrich doctors and plaintiffs lawyers. Responding to employers, the General Assembly cut payments to doctors by 30 percent in 2011. Even so, rates in Illinois were eighth-highest in the nation in 2016, according to a study, and twice as high as Indiana’s. Insurers reversed losses to report an average profit of 11 percent in 2014. Little wonder that Rauner and the Illinois Manufacturers’ Association are calling for further cost cuts to save jobs.
Oil and gas drillers use the full toolbox to lower the amount they spend on workers’ comp insurance: safety programs, lobbying state government and passing the expense to customers. A few are going further: Pioneer Oil, a producer with an affiliated drilling company, moved to Indiana, and the owner of Les Wilson, a driller in Carmi, about an hour west of Evansville, Ind., is considering whether to follow.
“You have an industry that’s very, very small in the state of Illinois, and it does a very dangerous job,” says Mike Kuykendall, co-owner of Energy Insurance Services in Olney, which specializes in insuring companies working in the Illinois Basin. When it comes to insurance rates, “there’s definitely a roller coaster.”
The roller coaster effect is magnified by the boom-and-bust cycle of the oil and gas industry. Workers’ comp is a fixed cost, while company revenue and profit are tied to the price of oil, which has fluctuated in the last five years from a high of $110.62 a barrel to a low of $26.19.
Drillers operate across the Illinois Basin, a 60,000-square-mile depression stretching across southern Illinois, Indiana and western Kentucky. There’s oil production in 40 of Illinois’ 102 counties, with more than 32,000 oil and gas wells controlled by 1,500 operators. But the industry doesn’t employ many: There were 730 full-time workers in oil and gas in 2017, earning an average $48,000 a year, according to the Bureau of Labor Statistics.
Drillers are even fewer. Hired by producers who lease the land and finance the project, drillers own the rigs that burrow through 2,000 to 4,000 feet of soil and New Albany Shale to extract oil or gas, with a well costing up to $200,000. The subindustry employs 251 in Illinois, with 41 percent clustered in White County, where Carmi is the county seat and the Wabash River forms the state line with Indiana. Both Les Wilson and another major driller, Geo N. Mitchell Drilling, are located there.
With other industries, the cost of paying claims is spread over more employers, Kuykendall says. There may be more injuries in car shops than oil rigs, but there’s also more businesses footing the bill. In drilling, a single large claim—say, a fall from a 100-foot-tall derrick—can have a direct, noticeable impact on premiums the next year.
Workers’ comp insurance rates for the industry actually are 24 percent cheaper than a decade ago. They peaked in 2010 at $54.79.
Perhaps one reason is that around 2008, insurance companies cracked down on safety. When Eric Puntney, owner of Chaney & Karch Insurance Group in Mount Vernon, started in oil and gas insurance in 2001, maybe half his customers offered safety training, he says. Now, almost all of them do. Major insurers like Bitco Insurance, HDI Global and Travelers already required such programs in big oil-producing states like Texas, Oklahoma and Kansas to underwrite policies. The smaller Illinois market may have escaped their notice at first, he says, but that changed.
In general, businesses in Illinois pay higher workers’ compensation premiums than Indiana, which had a median premium in 2016 of $1.05 for every $100 in payroll, making it the second-lowest in the nation. Drillers paid an insurance rate of $3.90 for every $100 in payroll.
Why? The agencies that determine insurance rates, like the National Council on Compensation Insurance, do so by examining insurers’ recent payouts for medical treatment and lost wages. The benefits that Indiana pays to injured workers are meager compared to what Illinois pays, so insurers can fund them with less money.
“Illinois is just more employee-friendly and not employer-friendly,” says Stephanie Wilson, vice president of Les Wilson. She says she’s been trying for 20 years to persuade her husband, Bob Wilson, to move his third-generation company to Indiana.
In 2009, the company employed 180. Now the number is closer to 40. Business headed south in 2015; customers don’t even want their wells serviced unless oil is selling for at least $50 a barrel, let alone have new ones drilled, Stephanie says.
The business is struggling financially, so the Wilsons have hired a real estate agent to sell the company’s commercial property, with plans to hop across the border. Bob says an executive from Pioneer Oil told him the exploration and production company saved $300,000 on insurance in its first year after moving from Lawrenceville to Vincennes, Ind., in 2015. One of Pioneer’s two affiliates, Franklin Well Services, received $3.8 million in conditional tax credits tied to job creation. “Why do we want to stay here?” Bob says. “It’s almost like you’re insane.”
But moving may not solve everything. Insurers don’t want to take losses on policies. It’s possible, Kuykendall says, for an insurer to track an out-of-state company when it drills in Illinois, and require it to pay Illinois rates for that time.
This article was first published by Chicago Business.
