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Texas Department of Insurance
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The Commissioner of Insurance (Commissioner) will hold a public hearing under Docket No. 2671 on October 3, 2007, at 9:30 a.m., in Room 100 of the William P. Hobby Building, 333 Guadalupe Street in Austin, Texas to consider a petition by the staff of the Texas Department of Insurance (Department) proposing the adoption of revised Texas Workers' Compensation Classification Relativities (classification relativities) to replace those adopted pursuant to Commissioner's Order No. 06-1309, dated December 15, 2006; and the adoption of a revised table to amend the Texas Basic Manual of Rules, Classification, and Experience Rating Plan for Workers' Compensation and Employers' Liability Insurance (Basic Manual) concerning the Expected Loss Rates and Discount Ratios used in experience rating. Staff's petition (Reference No. W-0907-10-I) was filed on September 4, 2007.

Staff requests that the proposed revised classification relativities be available for adoption by insurers immediately, but that their use be mandatory for all policies with an effective date on or after January 1, 2008, unless the insurer makes an independent filing to justify insurer-specific classification relativities. Staff further requests that the revised table amending the Basic Manual be made effective for workers' compensation experience modifiers with an effective date on or after January 1, 2008.

Texas Insurance Code §2053.051 requires the Department to determine hazards by class and establish classification relativities applicable to the payroll in each class for workers' compensation insurance. Section 2053.052 requires the Commissioner to adopt a uniform experience rating plan for workers' compensation insurance. Sections 2053.051 and 2053.052 further provide that the classification system and experience rating plans be revised at least once every five years.

The classification relativities currently in effect are based on experience data reflecting workers' compensation experience from policies with effective dates in 1999 through 2003. The proposed classification relativities are based on the analysis of experience data from policies with effective dates in 2000 through 2004. Staff's proposed classification relativities reflect changes in experience that occur over time.

Current classification relativities are at an average level of 65% of the overall average level of the 1994 classification relativities. This 65% level was adopted pursuant to Commissioner's Order No. 04-1001, dated October 14, 2004, to better reflect improvements in experience that had occurred with the passage of time.

Recent data and projections show that Texas loss experience has continued to improve. Therefore, staff proposes that each of the revised classification relativities be multiplied by a factor of 60/65, to bring the relativities to 60% of the overall average of the 1994 classification relativities.

Staff recommends capping changes in the proposed classification relativities to +25% and -25% of the current classification relativities prior to the adjustment to reduce the classification relativities to 60% of the 1994 classification relativities. After adjustment for the latter change, the proposed classification relativities will range from +15.4% to -30.8% of the current classification relativities.

Modifications to the classification relativities require concurrent changes in the expected loss rates and discount ratios, which are contained in Table II of the Basic Manual. The proposed expected loss rates are based on the anticipated level of the losses that were used to experience rate the average policy effective in 2008. Such a policy would be effective on July 1, 2008, and would reflect the proposed classification relativities. Staff also proposes to cap changes in the expected loss rates to +25% and -25% from the current expected loss rates. Staff also proposes to revise the discount ratios in Table II to reflect the ratios that will exist for losses used to experience rate policies effective in 2008. The changes in the discount ratios are not subject to capping.

Copies of the full text of the staff petition and a schedule of the proposed revised classification relativities and a table of the proposed expected loss rates and discount ratios are available for review in the Office of the Chief Clerk of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78714-9104. For further information or to request copies of the petition and proposed revised schedule and table, please contact Sylvia Gutierrez at, 512-463-6327 (Reference No. W-0907-10-I).

Comments on the proposed changes may be submitted in writing by 5:00 pm on October 15, 2007, to Gene Jarmon, General Counsel and Chief Clerk, P. O. Box 149104, MC 113-2A, Austin, Texas, 78714-9104. An additional copy of the comment should be simultaneously submitted to J'ne Byckovski, Chief Actuary, Property and Casualty Program, P. O. Box 149104, MC 105-5F, Austin, Texas, 78714-9104. Interested persons may also submit oral and/or written comments at the hearing.

This notification is made pursuant to the Texas Insurance Code, Article 5.96, which exempts action taken under this article from the requirements of the Administrative Procedure Act (Government Code, Title 10, Ch. 2001).

Exhibit A & B

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