Texas Workers’ Compensation Insurance: Know the Numbers You Can Influence
As a CEO, CFO, or risk manager in Texas, you need to know whether you are the beneficiary or victim of your Workers’ Compensation underwriter’s caprice. Workers’ Comp Insurance is unique among lines of property and casualty insurance in that the pricing mechanisms are clearly defined. The majority of standard market casualty (e.g., general liability) writers in Texas have non-filed “Lloyds” companies in which an underwriter can use unbridled discretion when pricing a risk, but Workers’ Comp writers must use specific pricing tools and constraints that ultimately decide the price of your insurance coverage. By asking the following three questions while reviewing your policy, you can determine if there is room for improvement.
What filed company am I in and what is the rate deviation? Each insurer has several different underwriting companies which they file with the state in order to get maximum flexibility when pricing a risk. For example, within the Liberty Mutual ecosystem, you will find such companies as West American Insurance Company, American Fire and Casualty, America First Lloyds, and the Netherlands Insurance Company – just to name a few. Each company has its own rate deviation (e.g., 1.2, 1.0, .8, .6) and can be considered either preferred (credit) or penal (debit). For example, the variance in premium could range from $120,000 to $60,000 simply based on the underwriting company selected.
The underwriting company for your specific organization was selected under two possible models: (1) A computer program used an “if A then B” algorithm based on underwriting metrics (e.g., total payroll, losses, SIC code, experience modifier); or, (2) a human mammal deliberately selected a company based on their perception of the risk characteristics of your organization. Both methods are imperfect, but that discussion is outside the scope of this article.
Find out which company your organization is underwritten in and where that company ranks along the insurer’s spectrum of companies. Getting into the preferred underwriting company is a good first step in managing your Workers’ Comp premium. The specific loss characteristics of your company may preclude you from the most preferred company. However, policies are often arbitrarily placed in companies they don’t belong and this will usually continue into perpetuity unless there is intervention on your part.
What amount of scheduled credits has the insurer applied? In Texas, underwriters can apply up to 40% of scheduled credits to a Workers’ Comp policy, and these credits are stratified into specific buckets. For example, 10% may be available for workplace safety, or perhaps 5% may be credited for management’s attitude toward risk management. It is important that you review the rating worksheets to see the specific scheduled credits that have been applied to your premium.
As a former Workers’ Comp underwriter with a standard carrier, I can say that underwriters often find creative ways to justify these discretionary credits in the absence of details. Hints of alchemy and relativism creep into the process. How can one accurately quantify management’s attitude toward safety? It certainly cannot be done with the information available to an insurance company.
When an underwriter has a 24-hour deadline to document a file, there is a tendency to suddenly recall details about an account. It is also important to note that after a policy is written, there is a period of time before issuance and auditing of the file. It is during this interim that underwriters often pad the file with all sorts of details about why the credits were applied. This is the insurance industry’s version of historical fiction.
Are we in or out of the Texas Workers’ Comp Healthcare Network? I have mixed feelings about the Texas Workers’ Comp Healthcare Network, but one thing that must be praised is the tremendous savings for employers. The typical discount is approximately 10%, which translates to tens of thousands of dollars depending on the size of the employer. Travelers Insurance currently offers a 12% discount for selecting “in-network” care, which is one of the highest percentage savings available.
There is a fine balance between the benefit the employer receives from the dollars saved and the injured employee’s care and satisfaction with care. The 2011 Workers’ Compensation Network Report Card shows that, overall, network injured employees report “lower levels of access to…and satisfaction with care.” Employers must make informed decisions based on company culture, attitude toward employees, the frequency/likelihood of claims, and the potential alternative uses for the dollars saved by joining the network.
Another important trade off to consider is the time spent dealing with an injured employee who is not receiving (or perceives to not be receiving) prompt and appropriate care. When considering the time drain one of these scenarios can have on a risk manager or human resource professional, there is virtually no difference between the injured worker’s perception of care and the actual care being rendered. A common scenario involves an injured worker wanting to see a specific physician outside of the network, and then feeling that the in-network provider is rendering sub-standard care. I have seen this situation play out several times and can attest to the hours, agony, and stress a supervisor or owner endures in their effort to help the injured employee.
Final Thought. Purchasing Workers’ Comp insurance is simply a transaction. It is a way to trade dollars with an insurance company who agrees to coordinate the care for your injured employees. It is also a way to shield your organization from negligence-related suits by offering a “no-fault” remedy to injured workers. However, there are numerous benefits to be reaped by your organization if you create a safe workplace free of injuries.
I encourage you to read the story of how Paul O’Neil transformed Alcoa by taking a singular approach to improving workplace safety ( story here). At your next insurance stewardship meeting, don’t be afraid to ask questions and be sure to understand these factors to ensure the best coverage for your company and your employees.