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Workers' Compensation Insurance

(April 2013)

Workers’ compensation insurance pays medical and income benefits to workers who are injured at work or have work-related diseases or illnesses.

This type of insurance protects workers by making sure that they are compensated for their injuries.  It also helps employers because it relieves them of liability for claims and gives them certain legal protections, including immunity from most injury lawsuits.

Workers get benefits based on the type and severity of their injuries. There are four types of workers’ compensation benefits:

  • Income benefits pay a portion of a worker’s lost wages.
  • Medical benefits pay for medical care to treat the work injury.
  • Burial benefits pay for some funeral expenses.
  • Death benefits pay some lost wages to the family of a worker killed on the job.

Workers’ compensation does not pay for injuries that

  • are intentional or self-inflicted
  • result from horseplay or voluntary drug or alcohol intoxication
  • result from voluntary participation in off-duty recreational, social, or sports events
  • result from “acts of God,” unless the job has a high risk of injury from such acts
  • are inflicted by someone else for personal reasons unrelated to employment.

Choosing to Provide Workers’ Compensation

The Texas Department of Insurance’s Division of Workers’ Compensation (DWC) regulates the state’s workers’ compensation system and certifies employers that want to self-insure.

Texas doesn’t require most private employers to have workers’ compensation insurance. Private employers who contract with the government are required to provide workers’ compensation coverage for each employee working on the public project. Some clients may also require their contractors to have workers’ compensation insurance.

Employers who choose not to have workers’ compensation insurance must

  • file an annual notice with TDI
  • display notices of noncoverage in the personnel office and throughout the workplace
  • give a written statement of noncoverage to each new employee.

Employers with workers’ compensation have some important legal protections, including immunity from most lawsuits by injured workers. If an employer has workers’ compensation insurance, a lawsuit may go to court after it’s been through TDI’s administrative dispute process. The court will consider TDI’s recommendations, and only issues in dispute may be used as evidence. Resolved issues can’t be reintroduced. The employer’s insurance company pays attorneys’ fees and other defense costs.

Employers without workers’ compensation could have to pay punitive damages if they lose lawsuits. They also lose certain common-law defenses, such as arguing that

  • the injured worker’s negligence caused the injury
  • the negligence of fellow employees caused the injury
  • the injured worker 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:

  • purchase a workers’ compensation insurance policy from an insurance company licensed by TDI
  • be certified by TDI to self-insure workers’ compensation claims
  • join a self-insurance group that has received a certificate of approval from TDI.

Note: 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.

Most insurance companies won’t sell a policy unless you have at least one part-time employee or expect to have an uninsured contractor work for you while the policy is in effect. Some companies may write a policy to cover executive officers of a corporation that has no other employees.

Certified Self-Insurance

Large private employers may self-insure if they are certified by TDI. To qualify, an employer must

  • provide information to TDI about its profitability, previous workers’ compensation losses, and number of workers
  • have certified safety programs at all job sites
  • provide a minimum security deposit of $300,000 or 125 percent (whichever is greater) of the employer’s existing workers’ compensation liabilities
  • have a minimum of $5 million of excess insurance coverage
  • have a total unmodified Texas premium of at least $500,000 or nationwide premiums of $10 million
  • pay fees and taxes necessary to support the administration of the program, including establishment of a guaranty fund for self-insured employers.

Private employers may also self-insure by joining with four 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 engaged 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
  • pay fees and taxes to support the administration of the program.

Workers’ Compensation Health Care Networks

Employers may provide workers’ compensation coverage for their employees by participating in workers’ compensation health care networks certified by TDI. These networks provide cost-effective health care for work-related injuries and illnesses. Because the networks specialize in treating injured workers, they also can help workers return to the job quickly and safely. Employers’ premiums might be less if they participate in a network.

Insurance companies (including political subdivisions, individual certified self-insured employers, and groups of certified self-insured employers) may create or contract with workers’ compensation health care networks to provide health care for injured workers.

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.

‘Alternative’ Policies

Texas law doesn’t consider alternative policies and coverage bought from unlicensed insurers – including surplus lines insurers – as workers’ compensation.  An injured worker 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.

Shopping for Workers’ Compensation Insurance

Employers should shop around to find the best rate before buying coverage. You can use the Texas Workers’ Compensation Rate Guide to learn companies’ rate levels, schedule rating, and contact information.

It’s also important to buy 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 463-6515 in Austin
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. Texas Mutual has a special program called START for employers who can’t buy coverage in the voluntary market. 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 online at www.texasmutual.com.

Insurance Company Responsibilities

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, industrial hygiene information, and industrial health services.

Insurance companies are required to tell employers about any claims against their workers’ compensation policies, but employers can waive the requirement. Employers may request in writing that their insurance companies tell them about settlement proposals and any administrative or judicial proceedings used to resolve claims. Employers may also request notifications relating to individual claims.

Employers 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.

Workers’ Compensation Rates

Rates vary and are generally based on an employer’s business classification. Insurance companies charge rates based on about 400 classifications.

Each employer’s payroll is a classification, and each classification is multiplied by the insurance company’s filed rate for that classification (rate per $100 payroll) to determine the estimated annual premium. This amount may be adjusted to reflect an employer’s specific risk profile, such as experience and schedule rating and any deductible that the employer might have purchased. An “expense constant,” which is comparable to an issuance fee, is then added to this premium.

Employers, agents, and insurance companies may question a classification by submitting a description of work operations to DWC’s Classification and Premium Calculation Division.

  Deputy Commissioner
  Workers’ Compensation Classification and Premium Calculation Division
, MC 105-2A
  Texas Department of Insurance
  P.O. Box 149104
  Austin, Texas 78714-9104

Employers may not charge workers for workers’ compensation coverage. There are some exceptions for independent contractors and certain building and construction workers.

Higher Deductibles

Employers with estimated annual premiums over $5,000 may choose plans with high deductibles 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, $2,000, $5,000, $10,000, and $25,000 per accident, not to exceed 50 percent of the employer’s estimated annual premium.
  • Aggregate deductible option. Applies to all accident claims covered during the policy period. Deductibles range from $2,000 to 100 percent of the employer’s estimated annual premium, up to a maximum of $100,000.
  • Per accident/aggregate deductible option. This option is a combination of the two options listed above.

Employers with estimated annual premiums in excess of $100,000 who want higher deductibles may negotiate 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 insurer may require a policyholder to pay a deposit premium for the policy and provide security for the deductible amount.

Group Purchase

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.

An insurance company will use group rates, but 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.

Retrospective Rating

Retrospective rating is an optional plan that offers employers 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 claims. 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 employers 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 employers 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 employers with at least $100,000 in estimated annual premiums (or $350,000 for all states where they operate). Policyholders and insurance companies may negotiate retro factors under this plan. This plan cannot be negotiated to include other lines of insurance.

Experience Rating

Insurance companies are required to calculate experience modifiers and most contract with third parties. 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 employers with either

  • annual workers’ compensation premiums of at least $10,000 and a one-year experience history
  • average premiums of $5,000 and at least two years of experience.

Your insurance company must send you a free copy of the experience modifier calculation and a plain-language letter explaining the calculation. This letter explains your right of appeal and offers you a free copy of the data used to calculate your modifier.

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 anniversary rating date.
  • Premium increases for modifiers issued and endorsed within the first 60 days of the effective date or the anniversary rating date will be applied retroactively to the effective date of the policy or to the anniversary rating date.
  • Premium increases for modifiers issued within the first 60 days of the effective date or the anniversary rating date -- but are not endorsed within the first 60 days after the anniversary rating date -- will be computed pro rata from the date the modifier is endorsed.
  • Premium increases for modifiers issued after the first 60 days of the effective date or the anniversary rating date will be computed pro rata from the date the modifier is endorsed.

Appealing an Experience Modifier

Employers who disagree with their experience modifier should first try to resolve the dispute with their insurance company. Improved loss ratios and improved safety programs are both reasons an employer may negotiate a lower modifier. For a company with operations in Texas and other states, a negotiated modifier applies only to the Texas portion of the premium.

If the dispute cannot be resolved, you can file a written request for a ruling by TDI’s deputy commissioner of DWC’s Classification and Premium Calculation Division.

The deputy commissioner will allow both sides to make informal arguments in person or by phone. Either party may appeal the deputy commissioner’s ruling to the commissioner of insurance. Any hearing will be conducted by the State Office of Administrative Hearings. If the parties consent, the commissioner may issue a decision based on written arguments, without a hearing.

Mail your written request to:

 Deputy Commissioner
 Workers’ Compensation Classification and Premium Calculation Division
, MC 105-2A
 Texas Department of Insurance
 P.O. Box 149104
 Austin, Texas 78714-9104

Premium Incentive for Small Employers

Employers 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.

Canceling a Policy

An employer may cancel a policy before its expiration date by notifying the insurance company and DWC by certified mail. The insurance company must refund any unearned premium. 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 or a deductible plan. 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 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 your local Workers’ Compensation Division field office, call the Injured Employee Hotline at 1-800-252-7031 or 512-933-1899 in Austin.

For general information about workers’ compensation, call the Customer Service Hotline at 1-800-372-7713 or 512-804-4000 in Austin.

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 or 512-463-6515 in Austin between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website at www.tdi.texas.gov.

You can also visit HelpInsure.com to help you shop for automobile, homeowners, condo, and renters insurance, and TexasHealthOptions.com to learn more about health care coverage and your options.

For printed copies of consumer publications, call the 24-hour Publications Order Line at 1-800-599-SHOP (7467) or 512-305-7211 in Austin.

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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