Employers often buy workers' compensation insurance to pay medical and income benefits to workers who have work-related injuries or illnesses. This type of insurance protects workers by assuring that they are compensated for their injuries, but it also is beneficial to employers. In addition to relieving them of liability for claims, workers' compensation gives employers certain legal protections, including immunity from most employee injury lawsuits.
Workers receive benefits based on the type and severity of their injuries. Benefits can include
• lifetime medical benefits for necessary treatment of compensable injuries and illnesses • disability income benefits for a specified period of time and up to dollar limits set by law • limited funeral expenses for workers killed on the job • death benefits for surviving dependents of workers killed on the job.
Benefits are not payable for injuries that
• are intentional or self-inflicted • result from the employee's horseplay or voluntary drug or alcohol intoxication • arise from voluntary participation in off-duty recreational, social, or sports events • result from "acts of God," unless a person's job exposes him or her to a greater than ordinary risk of injury from such acts • are inflicted by someone else for personal reasons unrelated to employment.
The Texas Department of Insurance (TDI) regulates the state's workers' compensation system.
Choosing to Provide Workers' Compensation
Texas does not require most private employers to carry workers' compensation insurance. Private employers who contract with governmental entities 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 of no coverage with TDI • prominently display notices of noncoverage in the personnel office and throughout the workplace • give a written statement of non-coverage 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, a lawsuit may go to court only after TDI's administrative dispute process has been exhausted. TDI's recommendations must be presented to the court, and evidence is limited to the issues in dispute Resolved issues cannot be reintroduced. The employer's insurance company pays attorneys' fees and other defense costs.
Employers without workers' compensation could be forced to pay punitive damages if they lose injury 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 of 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 to sell the coverage in Texas • 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.
Most insurers will not write a policy unless you have at least one part-time employee or anticipate having 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 to be covered • 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 and obtaining 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.
Certified 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 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 may be less if they participate in a network.
Insurance carriers may establish or contract with workers' compensation health care networks certified by TDI to provide health care for injured workers. (Insurance carriers include insurance companies, political subdivisions, individual certified self-insured employers, or groups of certified self-insured employers).
For more information about certified workers' compensation health care networks, visit the workers' compensation networks page on TDI's website
Texas law does not 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. The Texas Workers' Compensation Rate Guide shows relativities adopted by the commissioner of insurance, each insurance company's filed rate level, schedule rating information, and company contact information.
It's also important to buy from companies licensed to write workers' compensation in Texas. These companies are covered by the Texas Property and Casualty Guaranty Association, which pays claims for insurers who become insolvent and are unable to pay their claims. Claims against unlicensed insurers could go unpaid if the insurer becomes insolvent. You can learn whether a company is licensed by calling TDI's Consumer Help Line or viewing company profiles on the TDI website
1-800-252-3439
463-6515 in Austin
Volunteers of organizations may be covered by a workers' compensation policy only in certain circumstances. Volunteers of a political subdivision -such as volunteer firefighters, police officers, and emergency medical personnel - may be covered if the policy contract includes a special endorsement. Emergency service organizations separate from a political subdivision may cover volunteer members who participate in normal functions if the policy contract includes a special endorsement.
If you're unable to 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 cannot buy workers' compensation coverage in the voluntary market. This coverage is generally more expensive than coverage bought in the voluntary market. For more information, contact Texas Mutual
Insurance companies licensed to write workers' compensation in Texas must provide the following accident prevention services at no charge to policyholders:
• 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 notify employers of claims against their workers' compensation policies, but employers can waive the requirement. Upon written request, the insurance company must tell the policyholder of any settlement proposal and any administrative or judicial proceeding to resolve the claim. Employers may request further notifications relating to an individual claim.
If requested in writing, insurance companies must provide employers with a list of all claims against their policies, payments made or reserves established for those claims, and a statement of their effect on the policy premium.
Workers' Compensation Rates
Rates vary and are generally based on an employer's business type. Insurance companies charge different rates for each of the approximately 400 industry classifications.
Each employer's payroll is assigned to the appropriate 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.
If an employer, agent, or insurance company is not certain that the proper classification is shown on the workers' compensation policy, the employer can submit a detailed description of work operations to TDI's Division of Workers' Compensation (DWC) Classification and Premium Calculation Division.
Texas law forbids employers from charging their employees directly or indirectly for workers' compensation coverage. There are, however, some exceptions for independent contractors and certain building and construction workers.
Higher Deductibles
Certain employers can choose plans with higher deductibles to reduce their premiums if they're willing to reimburse the insurance company for part of their claim costs out of their own pockets. Only employers with an estimated annual premium of more than $5,000 are eligible for deductible plans.
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 than offered in the standard deductible plan may negotiate with their insurance company.
For all deductible options, the insurance company pays the claims, and the policyholder reimburses the insurer 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
With TDI approval, employers in similar lines of business or employers who are members of the same trade association may form a group to purchase workers' compensation insurance.
An insurer willing to provide coverage for the group will use its filed rates. Each member of the group buys its own individual policy and retains 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.
There are several retrospectively rated plans available to employers with a minimum standard annual workers' compensation premium of at least $15,000.
• Option Five is available to employers with minimum standard 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 is the most frequently used retrospective rating plan and is for employers with at least $100,000 in estimated Texas standard 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. Most insurance companies contract with third parties to calculate experience modifiers on their behalf. 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 • an average premium 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 statistical data used in calculating 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 both 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 telephone. 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 can 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 check 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 Hot Line
1-800-252-7031
933-1899 in Austin
For general information about workers' compensation, call the Customer Service Hot Line
1-800-372-7713
804-4000 in Austin
For answers to general insurance questions or for information on filing an insurance-related complaint, call the Consumer Help Line between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website
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
1-800-599-SHOP (7467) 305-7211 in Austin
Help us prevent insurance fraud. To report suspected fraud, call our toll-free Fraud Hot Line
1-888-327-8818
To report suspected arson or suspicious activity involving fires, call the State Fire Marshal's 24-hour Arson Hot Line
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.
