C.S.H.B. 2095 78(R) BILL ANALYSIS
C.S.H.B. 2095
By: Cook, Robby
Business & Industry
Committee Report (Substituted)
BACKGROUND AND PURPOSE
Currently, an employer who chooses to obtain workers' compensation
insurance coverage for its employees has three options for such coverage:
1. purchase traditional insurance from a workers' compensation commercial
insurance carrier;
2. join a group of employers to purchase insurance from a carrier; or
3. become a certified self-insurer under the comp law (applies only to
large employers).
A fourth option, self-insurance by a group of employers, is available to
some degree in all but six states. This option is considered valuable in
other states because:
it puts small and mid-size employers on a more level playing field
with large employers who can already self-insure, thus providing an
affordable option for these smaller employers;
it reduces claims and enhances safety through active loss prevention
and rehabilitation programs; and
it reduces administrative expenses.
This bill allows for employers in the same type of business and belonging
to a bona fide trade association in Texas to join together to self-insure
for workers' compensation. This legislation is based on the model act for
group self-insurance adopted by the National Association of Insurance
Commissioners and draws from provisions in the Texas Insurance Code
applicable to commercial insurance companies and the Texas Workers'
Compensation Act applicable to individual certified self-insured
employers.
This bill does not amend the provisions of the Texas Workers' Compensation
Act that provide for the amount, type, or procedures to deliver workers'
compensation benefits or the Texas Workers' Compensation Commission's
jurisdiction over the provisions of the workers' compensation law. All
provisions of the workers' compensation law will apply to a selfinsurance
group.
This bill will allow for a more targeted approach to loss prevention,
rehabilitation, and other preventive and corrective measures to reduce
workers' compensation injuries and costs. The requirement that members
are in the same business and in a bona fide trade association means that
the self-insurance group will be more familiar with the industry, the
types of safety and return-to-work issues common to the industry, and
other needs of these particular employers. This in-depth understanding of
the industry involved in the group allows better control of injuries and
costs.
Another important goal of this legislation is to ensure that more Texas
employers participate in the workers' compensation system. Texas is the
only state that does not require a private employer to provide workers'
compensation to its employees. Texas has a significant number of
employers who do not provide workers' compensation because the employer
simply cannot afford it. Group self-insurance will provide an affordable
option for small and mid-size employers to provide these benefits to their
employees.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is expressly
granted to the Texas Department of Insurance in SECTION 1 of this bill.
ANALYSIS
SECTION 1. Adds a new Chapter 407A to the Texas Workers' Compensation Act
(Subtitle A, Title 5, Texas Labor Code) providing for group self-insurance
coverage.
Subchapter A. General Provisions
Sec. 407A.001: Provides definitions.
Sec. 407A.002: Provides that five or more employers may establish a
group if the employers are in the same or similar business and are members
of an existing bona fide Texas trade association in existence for purposes
other than insurance; the members must enter into agreements to pool their
liabilities for workers' compensation benefits and employers' liability;
provides that this chapter does not apply to governmental entities.
Sec. 407A.003: Allows merger of groups with members in the same or
similar business on approval of the commissioner of insurance.
Sec. 407A.004: Provides that a group under this chapter is not an
insurer and is subject to insurance laws and regulations only as provided
in this chapter.
Sec. 407A.005: Requires issuance of a certificate of approval from the
commissioner of insurance before the group may act as a self-insured
group.
Sec. 407A.006: Requires that the commissioner of insurance be appointed
as attorney for service of legal process for the group.
Sec. 407A.007: Requires that hearings under this chapter be conducted by
the State Office of Administrative Hearings.
Sec. 407A.008: Allows the commissioner of insurance to promulgate rules
as required under this chapter.
Subchapter B. Application Requirements for Certificate of Approval for
Self-Insurance Group
Sec. 407A.051: Provides the form and content of an application for a
certificate of approval; requires that the application be submitted to the
commissioner of insurance and provides for requirements of a financial
statement, a $1000 nonrefundable filing fee, performance bonds, and
initial asset requirements; requires the group to notify the commissioner
of insurance of any changes in the information contained in the
application; requires the commissioner to act on the application within 90
days unless the number of applications requires an additional 30 days.
Sec. 407A.052: Provides for approval or denial of an application for
group self-insurance to provide workers' compensation benefits.
Sec. 407A.053: Provides financial requirements for the group, including
combined net worth of the members of at least $1 million or, in the case
of an existing trust, a surplus of at least $2 million; provides the
amount and form of security that will be negotiable by the executive
director of the Texas Workers' Compensation Commission and will be
deposited in the state treasury.
Sec. 407A.054: Requires excess insurance for losses that exceed the
group's retention and allows the commissioner of insurance to establish
minimum requirements for the excess insurance.
Sec. 407A.055: Requires an initial annual premium of $250,000 and
$500,000 in subsequent years.
Sec. 407A.056: Requires an indemnity agreement to jointly and severally
bind the members of the group to cover the workers' compensation
obligations of the group.
Sec. 407A.057: Authorizes the commissioner of insurance to require an
additional performance bond of $250,000 for the claims administrator.
Subchapter C. Termination of Certificate of Approval
Sec. 407A.101: Provides that the certificate remains in effect until
terminated by the group or the commissioner of insurance; requires the
commissioner of insurance determine that the group has insured or
reinsured all obligations with an authorized insurer prior to allowing a
termination on request of the group.
Subchapter D. Board of Trustees
Sec. 407A.151: Requires a board of at least five members of the group
and prohibits anyone associated with an administrator or service company
from being a member of the board.
Sec. 407A.152: Provides that the board shall maintain minutes of its
meetings, designate an administrator and delineate the administrator's
duties, and retain a certified public accountant.
Sec. 407A.153: Prohibits the board from extending credit to a member
except for a payment plan approved by the commissioner or otherwise on
approval of the commissioner; prohibits the board from borrowing money
from the group or in the name of the group except in the ordinary course
of business.
Sec. 407A.154: Provides that the board is responsible for all monies
collected or disbursed by the group.
Subchapter E. Group Membership; Termination; Liability
Sec. 407A.201: Requires an employer to submit an application for
membership and sign the required indemnity agreement; requires
notification to the commissioner of insurance and the Texas Workers'
Compensation Commission of the termination; requires continuance of
coverage for 30 days or until the employer obtains other coverage;
provides that the group remains liable for the terminated member's claims
incurred during the period of the terminated member's membership in the
group and that the terminated member remains jointly and severally liable
for the obligations of the group incurred during membership in the group;
provides that insolvency or bankruptcy of the member does not relieve the
group of its liability for workers' compensation benefits.
Subchapter F. Examinations, Financial Statements, and Other Reports
Sec. 407A.251: Requires audited financial statements to be filed with
the commissioner of insurance and provides the content of the statements.
Sec. 407A.252: Authorizes the commissioner of insurance to examine the
financial condition of a group once every three years unless the
commissioner determines that the group may not be able to meet its
obligations.
Subchapter G. Taxes, Fees, and Assessments
Sec. 407A.301: Requires the group to pay a maintenance tax for the
administration of the Texas Workers' Compensation Commission and the
prosecution of workers' compensation insurance fraud; provides that the
tax will be based on gross premium for the group's retention and
multiplied by the rate assessed against insurance carriers; provides that
the tax does not apply to the group's premium for excess insurance.
Sec. 407A.302: Requires the group to pay a maintenance tax for the
administrative costs of the department of insurance to administer this
chapter; provides that the tax is based on gross premium for the group's
retention and does not apply to premium collected by the group for excess
insurance.
Sec. 407A.303: Requires the maintenance tax be deposited in the state
treasury; provides an administrative penalty for failure to timely pay the
taxes.
Sec. 407A.304: Requires the group to pay premium tax on gross premium's
for the group's retention; provides that the premium tax does not apply to
premium collected for excess insurance.
Subchapter H. Rates; Refunds; Premium Payments; Reserves; Deficits
Sec. 407A.351: Requires the group to use the Texas Department of
Insurance uniform classification system, experience rating plan, and rate
relativities, except that the group may modify the rate relativities to
produce rates based on the group's historical experience or the group may
file its own rates; allows the group to use rating debits or credits or
optional rating plans; provides that the rates may not be excessive,
inadequate, or unfairly discriminatory.
Sec. 407A.352: Requires an annual audit to verify classifications,
experience rating, payroll, and rates and requires the audit be available
to the commissioner of insurance.
Sec. 407A.353: Authorizes the board to declare refundable any monies not
necessary to meet the group's obligations in a fund year and requires the
group to provide each member a description of the group's refund plan.
Sec. 407A.354: Requires the group to establish a premium payment plan
acceptable to the commissioner of insurance until the group's assets are
adequate to cover liabilities; authorizes a group to establish its own
premium plan if the assets of the group are sufficient to cover its
liabilities; requires the group to maintain actuarially appropriate
reserves for claims and expenses; requires the group to maintain bad debt
reserves.
Sec. 407A.355: Requires the group to make up any deficiency from surplus
or administrative funds or levy an assessment on its members to make up a
deficiency; requires the commissioner of insurance to order the group to
make up a deficiency and the group is deemed insolvent if it fails to do
so; requires the commissioner of insurance, in the event the group is
liquidated, to secure release of the security deposit and levy the members
of the group to cover the group's obligations including the cost of the
liquidation.
Subchapter I. Disciplinary Actions; Penalties
Sec. 407A.401: Prohibits untrue or misleading statements or omissions in
solicitation of membership in the group.
Sec. 407A.402: Provides for fines up to $10,000 for violation of this
chapter or rules promulgated under this chapter.
Sec. 407A.403: Authorizes the commissioner of insurance to issue a cease
and desist order for violation of this chapter or rules promulgated under
this chapter and provides for penalties up to $100,000 and revocation of
certificate of approval for violation of a cease and desist order.
Sec. 407A.404: Authorizes the commissioner of insurance to revoke the
certificate of approval if the group is insolvent or fails to pay
required taxes or assessments, or fails to timely comply with this
chapter, rules, or orders of the commissioner of insurance; authorizes
revocation of the certificate of approval for fraud, misrepresentation, or
improper use or failure to pay money belonging to any member of the group.
SECTION 2. Amends Sec. 401.011(27), Labor Code, to include "a certified
selfinsurance group certified under Chapter 407A" in the definition of
"insurance carrier".
SECTION 3. Provides for an effective date of September 1, 2003 and
allows a group to provide coverage on or after January 1, 2004.
EFFECTIVE DATE
September 1, 2003. Allows a group to provide coverage on or after January
1, 2004
COMPARISON OF ORIGINAL TO SUBSTITUTE
SECTION 1.
Sec. 407A.001: Substitute changed definition of "net premium" (defining
"modified annual premium" instead) and "standard premium" to be consistent
with the Texas Department of Insurance workers' compensation manual.
Sec. 407A.002: Substitute added a requirement that the trade association
be a Texas association in business for purposes other than insurance.
Sec. 407A.051, subsec. (c)(1): Substitute doubled the filing fee, going
from $500 to $1000.
Sec. 407A.051, subsec. (c)(11): Substitute provides for a promise to pay
premium in lieu of collection of actual premium prior to approval of the
group.
Sec. 407A.051(e): Substitute clarifies "gaps in funding" by requiring
sufficient funds to cover expected losses and expenses.
Sec. 407A.053, subsec. (b): Substitute requires the group to provide a
combined report certified by a certified public accountant to show that
the group meets the requirement of $1 million combined net worth;
substitute requires an existing trust to have surplus of at least $2
million rather than assets of $5 million.
Sec. 407A.054, subsec. (b): Substitute provides that the group have
specific excess insurance to cover losses that exceed the group's
retention and deletes the option for the group to deposit security in lieu
of purchasing excess insurance.
Sec. 407A.252: Substitute adds this new section to allow the commissioner
of insurance to exam the records of the group.
Sec. 407A.301: Substitute clarifies that this tax is for the Texas
Workers' Compensation Commission and adds language to make this section
consistent with other tax provisions.
Sec. 407A.302: Substitute provides a maintenance tax for administrative
costs of the Texas Department of Insurance in lieu of an annual fee.
Sec. 407A.303: Substitute clarifies language to be consistent with other
tax provisions.
Sec. 407A.304: Substitute adds a requirement that the group pay premium
tax.
Sec. 407A.352: Substitute requires the group to make its member audits
available to the commissioner rather than providing a copy of all audits;
substitute deletes the hearing provisions because the workers'
compensation manual already addresses procedures to handle classification
issues.
Sec. 407A.354: Substitute deletes subsection (b) because the workers'
compensation manual does not prescribe specific premium payment plans but
the substitute maintains the requirement that the group's payment plan be
satisfactory to the commissioner.
Sec. 407A.355, subsec. (e): Substitute provides additional authority to
the commissioner to order any deficiency to be made up by any method if
the commissioner finds that the group is in a hazardous financial
condition.
Sec. 407A.355, subsec. (g): Substitute clarifies that the commissioner
shall use the security deposit to pay the group's obligations if the group
is insolvent.
Sec. 407A.404, subsec. (a)(2): Substitute makes conforming changes.