Workers' Compensation Insurance
Workers’ compensation insurance is a state regulated insurance system that ensures medical bills and some lost wages are paid for employees injured on the job or who have work-related diseases or illnesses.
Employees covered by workers’ compensation receive benefits based on the type and severity of their injuries. Benefits include:
- medical benefits for medically necessary treatment of work-related injuries and illnesses;
- income benefits for a specified period of time up to a certain dollar limit set by law; and
- compensation for burial expenses for employees killed on the job;
- death benefits for dependents of employees killed on the job.
If there is a workers’ compensation claim for benefits, an employee’s family may be entitled to pursue other remedies through the courts if the employee is killed and the death was caused by the employer’s gross negligence or intentional act or omission.
Workers’ compensation doesn’t pay for injuries that:
- are intentional or self-inflicted,
- result from horseplay or voluntary drug or alcohol intoxication,
- are inflicted by someone else for personal reasons unrelated to the job,
- result from voluntary participation in off-duty recreational, social, or sports events, or
- result from “acts of God” (like floods or hurricanes), unless the job has a particularly high risk of such injuries.
The Texas Department of Insurance- Division of Workers’ Compensation (TDI-DWC) regulates the state’s workers’ compensation system by:
- administering the workers’ compensation law to ensure that medical and indemnity benefits are paid to injured workers according to the workers’ compensation law,
- providing a mechanism for dispute resolution of workers’ compensation claims,
- coordinating return-to-work efforts between insurance company and policyholder,
- providing workplace safety services, and
- issuing certificates of authority to self-insure for workers’ compensation to employers that qualify.
Texas doesn’t require most private employers to carry workers’ compensation insurance. However, private employers who contract with governmental entities are required to provide workers’ compensation coverage for each employee working on the public project. Some contractors may require their sub-contractors and independent contractors to carry workers’ compensation insurance.
Employers may not charge employees for workers’ compensation coverage. There are some exceptions for independent contractors and certain building and construction workers.
Employers who choose not to have workers’ compensation insurance - called non-subscribers – must:
- file an annual notice with TDI-DWC,
- display notices of non-coverage in the personnel office and throughout the workplace, and
- give a written statement of non-coverage to each new employee.
Employers without workers’ compensation coverage don’t have the same legal protections as employers that provide workers’ compensation coverage. If an injured employee of a non-subscriber files suit and is able to prove that the injury was due to the employer’s negligence, the non-subscriber could be subject to high damage awards, including punitive damages and damages for pain and suffering. The non-subscriber might also be required to pay defense-related legal expenses, such as attorney’s fees.
Non-subscribers also lose certain common-law defenses, including:
- the injured employee’s negligence caused the injury,
- the negligence of fellow employees caused the injury, and
- the injured employee knew about the danger and voluntarily accepted it.
Providing Workers’ Compensation
If employers choose to provide workers' compensation, they must do so in one of the following ways:
- buy a workers’ compensation insurance policy from an insurance company licensed by TDI,
- be certified by TDI-DWC to self-insure workers’ compensation claims,
- join a self-insurance group that has received a certificate of approval from TDI, or
- be a self-insured governmental entity.
Political subdivisions may self-insure, buy coverage from insurance companies, or enter into inter-local agreements with other political subdivisions that self-insure. Emergency service organizations and political subdivisions may cover volunteers – such as volunteer firefighters, police officers, and emergency medical personnel – with a special endorsement on the policy.
Employers with workers’ compensation have some important legal protections, including immunity from most lawsuits by injured employees. If an employer has workers’ compensation insurance, a lawsuit may only go to court after it has been through TDI-DWC’s administrative dispute process. The court will consider TDI-DWC’s recommendations, and only issues in dispute may be used as evidence. The employer’s workers’ compensation insurance company pays attorneys’ fees and other defense costs.
Most insurance companies won’t sell a policy unless the employer has at least one part-time employee or expects to have an uninsured contractor work for them while the policy is in effect. Some insurance companies may write a policy to cover executive officers of a corporation that has no other employees.
Large private employers may self-insure for workers’ compensation if they are certified by TDI-DWC. Some of the key requirements to become a certified self-insurer in Texas include:
- being a private employer with operations in Texas;
- having an estimated unmodified manual insurance premium of at least $500,000 in Texas, or at least $10 million nationwide;
- providing audited financial statements;
- providing information to TDI-DWC about its profitability;
- providing a minimum security deposit of $300,000 or 125 percent (whichever is greater) of the employer’s existing workers’ compensation liabilities;
- having a minimum of $5 million per occurrence of excess insurance coverage;
- having certified safety programs at all Texas job sites;
- presenting of a claims administration plan;
- paying fees and taxes necessary to support the administration of the program, including establishment of a guaranty fund for self-insured employers;
- submitting of an “Application for Certificate of Authority” to TDI-DWC, and
- paying a non-refundable $1,000 application fee.
Private employers may also self-insure by joining with five or more private employers to establish a workers’ compensation self-insurance group. The group must receive a certificate of approval from TDI.
The employers in the group must:
- be in the same or similar type of business,
- be members of a bona fide trade or professional association that has been in existence in Texas for purposes other than insurance for at least five years before the establishment of the group,
- enter into agreements to pool their liabilities for workers’ compensation benefits and employers’ liability in Texas,
- provide required information to TDI, such as financial information about the members of the group, the governing classification code of the group or a description of operations for each member of the group showing that the members of the group are engaged in similar operations, and evidence of the required performance bonds,
- provide a minimum security deposit of $300,000 or 25 percent (whichever is greater) of the group’s total incurred liabilities for workers’ compensation,
- have an estimated annual premium, subject to an experience modifier, of at least $250,000 during the group’s first year of operation and an annual standard premium of at least $500,000 thereafter,
- have a minimum of $5 million per occurrence of excess insurance, and
- pay fees and taxes to support the administration of the program.
Texas law doesn’t consider alternative policies and coverage bought from unlicensed insurance companies – including surplus lines insurance companies – as workers’ compensation. An injured employee covered by an alternative policy may still be able to sue an employer for damages resulting from a work-related injury.
Alternative accident and health policies contain dollar limits and time limits. If expenses exceed the limit, the employer may be responsible for paying the remainder. Workers’ compensation policies cover all related medical expenses even if an expense occurs years after the accident.
Accident Prevention Services
Insurance companies that sell workers’ compensation policies must provide the following free accident prevention services:
- safety surveys, recommendations, and training programs;
- safety consultations, including analysis of accident causes; and
- industrial hygiene information, and industrial health services.
Insurance companies must provide notice on the front of each Texas workers’ compensation policy advising the policyholder that accident prevention services are available.
Required Claim Information to Policyholders
Insurance companies are required to tell policyholders about any claims against their workers’ compensation policies, but policyholders can waive the requirement. Policyholders may request in writing that their insurance companies tell them about settlement proposals and any administrative or judicial proceedings used to resolve claims. Policyholders may also request notifications relating to individual claims.
Policyholders may also ask companies for a list of all claims against their policies, payments made or reserves established for those claims, and a statement of the effect on the policy premium.
Shopping for Workers’ Compensation Insurance
Policyholders should shop around to find the best rate before buying coverage. You can use the Texas Workers’ Compensation Rate Guide at www.tdi.texas.gov/wc/regulation/rcomp.html to learn companies’ rate levels, schedule rating, and contact information.
It’s also important to buy workers’ compensation insurance from companies licensed by TDI. Licensed companies are covered by the Texas Property and Casualty Guaranty Association, which pays claims for insurance companies who become insolvent and are unable to pay their claims. Claims against unlicensed insurance companies could go unpaid if they become insolvent. You can learn whether a company is licensed by calling TDI’s Consumer Help Line at 1-800-252-3439 or viewing company profiles on the TDI website at www.tdi.texas.gov.
If you can’t find workers’ compensation insurance through the voluntary market, Texas Mutual Insurance Company is the insurer of last resort in Texas. This coverage is generally more expensive than coverage bought in the voluntary market. For more information, contact Texas Mutual at 1-800-859-5995 or visit its website at www.texasmutual.com.
Workers’ Compensation Rates
Workers’ compensation rates are file and use in Texas. An insurance company may choose to base its rates on
- the Texas workers’ compensation classification relativities established by the commissioner of insurance,
- its own independent company-specific relativities filed by the company, and
- loss filed by the National Council on Compensation Insurance, which is an advisory organization to TDI.
The relativities established by the commissioner and the independent company-specific relativities filed by the company represent the relationship between classifications. Insurance companies that choose to use the relativities as a basis for their rates file a deviation factor with TDI that is then multiplied by the relativity to determine the rate. Both types of relativities are intended to cover the indemnity and medical benefits provided under the workers’ compensation system in Texas, as well as profits, taxes, and expenses for the insurance company.
The loss costs filed by NCCI for each classification are intended to cover the indemnity and medical benefits provided under the workers’ compensation system in Texas, as well as the expenses associated with providing these benefits. Insurance companies that choose to use the loss cost as a basis for their rates file a loss cost multiplier, which contemplates any other expenses associated with providing workers’ compensation insurance, such as agents’ commissions, profits, and taxes for the company. The loss cost is multiplied by the loss cost multiplier to determine the rate.
Texas policyholders are assigned one or more classifications based on the type of business. Each employee’s payroll is then assigned to the appropriate Texas classifications, but the rates for the individual classifications differ from one company to another. Insurance companies must choose from the appropriate classification for a business from the over 400 classifications that apply in Texas.
Each employee’s total payroll is assigned to the appropriate classification for the business. The total payroll for each classification is then multiplied by the company’s rate, based either on relativities or loss costs, for that classification (rate per $100 payroll) to determine premium. The employer’s total manual premium is the sum of the premiums for the individual classifications. This amount may be adjusted to reflect an employer’s specific risk profile, such as, but not limited to, experience rating, schedule rating, deductible credit, and certified workers’ compensation healthcare network credit. An expense constant, which is comparable to an insurance fee, is then added to the premium in an amount filed with TDI by the insurance company.
Policyholders with estimated annual premiums over $5,000 may choose a deductible plan to reduce their premiums, if they’re willing to reimburse the insurance company for part of the claim costs.
The standard deductible plans are:
- Per accident deductible option. This option offers deductibles of $1,000, $2,500, $5,000, $10,000, and $25,000 per accident, not to exceed 50 percent of the employer’s estimated annual premium.
- Per claim deductible option. This option offers deductibles of $1,000, $2,500, $5,000, $10,000, and $25,000 per claim, not to exceed 50 percent of the employer’s estimated annual premium.
- Medical only option. This option offers deductibles of $500, $1,000, $1,500, $2,000, and $2,500 per medical only claim.
Employers with estimated annual premiums over $100,000, or policyholders who want higher deductibles than offered in the above plans may negotiate the terms of this option with their insurance company.
For all deductible options, the insurance company pays the claims, and the policyholder reimburses the company up to the amount of the deductible. An insurance company may require a policyholder to provide security for the deductible amount.
Employers in similar lines of business or employers who are members of the same trade association may ask for TDI’s approval to form a group to purchase workers’ compensation insurance.
Each member of the group will buy its own individual policy and retain its own experience modifier. However, premium discounts are based on the total premium for the group. In addition, specialized safety programs and dividends the insurance company pays may result in added benefits or savings.
Workers’ Compensation Health Care Networks
Insurance companies, political subdivisions certified self-insureds, and certified self-insurance groups can either establish their own health care network for certification by TDI or contract with a network that has already been certified. Policyholders who choose to participate in a certified workers’ compensation health care network may receive a reduction in their workers’ compensation premium because of the cost savings achieved by the Texas workers’ compensation claims being handled by a certified network. Because the networks specialize in treating injured employees, they also help employees return to the job more quickly.
For more information about certified workers’ compensation health care networks, visit the workers’ compensation networks page on TDI’s website at www.tdi.texas.gov/wc/wcnet/indexwcnet.html.
Premium Incentive for Small Employers
Policyholders with a premium too low to qualify for experience rating may benefit from the premium incentive plan.
Businesses with an estimated annual premium of less than $5,000 are eligible for a 10 percent discount if they had no compensable lost-time injuries during the last year. The discount increases to 15 percent if there were no compensable lost-time injuries during the last two years. If there were two or more lost-time injuries in the last year, a 10 percent surcharge is applied.
Retrospective rating is an optional plan that offers policyholders potential savings as an incentive for having a safe workplace. Employers must choose retrospective rating within the first 60 days of the policy period.
An employer’s premium is adjusted six months after the end of the policy period, based on the actual claim experience. Premiums are then adjusted each year until all claims for the period are closed or the premium reaches a pre-selected maximum. Premium adjustments reward policyholders when claims are low. If claims are high, the employer may pay more than the standard premium, subject to the pre-selected maximum.
Employers with a minimum annual workers’ compensation premium of at least $15,000 can choose from several plans, including:
- Option Five. This plan is available to policyholders with minimum annual premiums of $25,000. It allows employers to negotiate for both a minimum and maximum premium. In addition, an employer may negotiate a plan that includes other lines of insurance, such as automobile and general liability.
- The Large Risk Alternative Rating Option. This plan is the most common and is for policyholders with at least $100,000 in estimated annual premiums (or $350,000 for all states where they operate). Policyholders and insurance companies may negotiate retrospective factors under this plan. This plan can’t be negotiated to include other lines of insurance.
NCCI calculates experience modifiers for those insureds who meet the premium eligibility requirements... Experience rating rewards employers with losses that are less than expected and penalizes those with losses that are greater than expected.
The experience modifier calculation is based on an employer’s payroll and loss information for a period of 12 to 39 months. The experience period generally consists of the past four policy years, excluding the most recent policy year. An employer’s actual losses are compared with the expected losses for businesses with similar job classifications and payrolls. If losses are less than expected, the employer gets a credit modifier that reduces the employer’s premium. If losses are higher than expected, a debit modifier increases the employer’s premium.
Experience rating is mandatory for policyholders with either
- annual workers’ compensation premiums of at least $10,000 and a one-year experience history, or
- average premiums of $5,000 and at least two years of experience.
If your experience modifier is calculated during the policy period, your premium will be decreased or increased as follows:
- Premium decreases will be applied retroactively to the effective date of the policy or to the rating effective date, if different than the policy effective date.
- Premium increases for modifiers issued and endorsed within the first 60 days of the effective date or the rating effective date will be applied retroactively to the effective date of the policy or to the rating effective date, if different than the policy effective date.
- Premium increases for modifiers issued after the first 60 days of the effective date or the rating effective date, if different than the policy effective date will be computed pro rata from the date the insurance company endorses the policy.
- Premium increases for modifiers due to the one of the following reasons that occur at any time during the policy period or after the expiration of the policy are applied retroactively to the inception of the policy or as of the rating effective date, if different than the policy effective date:
- changes in ownership or combinability status,
- retroactive reclassification of a risk,
- late issuance of an experience rating modification due to an uncooperative employer in completing the final payroll audit, or
- an appeals board or other administration process or judicial decision.
Resolving Premium/Rule Disputes
If a policyholder has a dispute about its policy related to rates, the application or interpretation of rules contained in the various National Council on Compensation Insurance manuals (including but not limited to classification codes and experience rating), rating programs, endorsements, or forms, contact the carrier that issued the policy. If the dispute isn’t resolved with the carrier, the policyholder should contact the National Council on Compensation Insurance, Inc. to request that the dispute be resolved through the dispute resolution process described in the NCCI Basic Manual, Miscellaneous Rules in the Texas exceptions.
Send the request for assistance:
- By mail to: NCCI, Regulatory Assurance Department – Dispute Resolution Services, 901 Peninsula Corporate Circle, Boca Raton, FL 33487-1362
- By fax to 561-893-5043
- By email to firstname.lastname@example.org
A policyholder must pay any undisputed premium to the carrier prior to asking for NCCI’s assistance with the dispute.
NCCI will first work with the policyholder and the carrier to resolve the dispute. If no resolution can be reached, then the dispute can be heard by a the Texas Appeals Panel, which consists of five voting members, two carrier members, an agent member, a small employer, and a large employer, appointed by the Texas Commissioner of Insurance. A TDI staff non-voting member, except in the event of a tie vote, designated by the commissioner serves as the chair of the panel. An NCCI non-voting technical advisor is the administrator to the appeals panel.
Within 30 days of the date a decision of the appeals panel is issued, any party to the dispute may appeal the decision of the Appeals Panel to the Texas Department of Insurance. To appeal a decision of the Appeals Panel, contact the Texas Department of Insurance:
- By mail: Office of the Chief Clerk: Mail Code 113-2A, P.O. Box 149104, Austin, TX 78714-9104
- By fax to 512-490-1064
- By email to email@example.com
Canceling a Policy
An employer may cancel a policy before its expiration date by notifying the insurance company and TDI-DWC by certified mail. The insurance company must refund any unearned premium after the final payroll audit is completed. Although an insurance company may not charge a penalty if you choose to cancel your policy, there may be penalties involved if the policy is subject to retrospective rating. Be sure to ask about penalties before you cancel a policy.
An insurance company may also cancel or refuse to renew a policy. The company must provide advance notice to the policyholder and to TDI-DWC by certified mail. Companies must give 10 days’ notice if they cancel or nonrenew a policy because of delinquent premium payments or fraud. Cancellation or nonrenewal for most other reasons requires 30 days’ notice.
For More Information or Assistance
To contact the Division of Workers’ Compensation for information about workers’ compensation and the workers’ compensation claim process, call DWC at 1-800-252-7031 and select an option from the menu.
To file a workers’ compensation complaint about a claim involving one of your employees, contact DWC, System Monitoring and Oversight by email to DWC-ComplaintResolution@tdi.texas.gov, or by fax to 512-490-1030.
For answers to general insurance questions, for information about filing an insurance-related complaint, or to report suspected insurance fraud, call the Consumer Help Line at 1-800-252-3439 between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website at www.tdi.texas.gov.
For printed copies of consumer publications, call the Consumer Help Line.
To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hour Arson Hotline at 1-877-4FIRE45 (434-7345).
The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.
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Last updated: 08/20/2015