Workers’ Compensation in Texas A Brief History

1. Workers’ Compensation in Texas A Brief History

2. 18th Century Pirates1 If you survived the injury (no death benefits) Loss of an eye – 100 pieces of eight2 (Spanish coin) Loss of a finger – 100 pieces of eight Loss of left arm – 500 pieces of eight Loss of right arm – 600 pieces of eight Loss of left leg – 400 pieces of eight Loss of right leg – 500 pieces of eight International Development 1Source: Insurance Journal, July 29, 2008. 2Equivalent of about 50 weeks of wages in colonial America

3. 1881 – Germany enacts first workers’ compensation program 1897 – England enacts Workers’ Compensation Act Early 20th Century – states in U.S. begin enacting workers’ compensation laws International Development

4. 1913 – Employer’s Liability Act enacted 1989 – Major reform created main elements of current workers’ compensation system 1991 – Legislature creates Texas Workers’ Compensation Insurance Fund (“the Fund”) 2001 – “The Fund” restructured to become Texas Mutual Insurance Company 2005 - Workers’ compensation healthcare networks authorized Texas Workers’ Compensation Development

5. Workers’ Compensation System: Lump sum settlements Trial de novo Medical inflation Attorney involvement Administered by IAB Workers’ Compensation Insurance System: Promulgated rates Rapid rate increase in late 1980’s “Pool” grows rapidly in late 1980’s 1980’s

6. 1989 Pool writes $850 million Pool deficit - $550 million Assessments SB1 passes in 3rd Special Session Forbids lump sum settlements Eliminates trial de novo Controls medical costs through TWCC medical fee guidelines Creates TWCC, effective 1990 Other reforms take effect 1-1-91 Creates “Facility” out of old “Pool” effective 1-1-91

7. 1990 4-1-90 TWCC created to administer system Pool writes $1.2 billion Pool deficit - over $500 million Assessments AFL-CIO lawsuit

8. 1991 1-1-91 SB1 reforms become law 4-1-91 TDI “letter from hell” to insurers

9. TDI “Letter From Hell” April 1, 1991 letter sent from State Board of Insurance to all companies writing Workers’ Compensation Coverage in Texas. Activities which have the effect of circumventing the provisions of the Insurance Code, agency regulations and Orders of State Board of Insurance with respect to premium rates and premium calculations. Practices which result in an insured paying a surcharge or other fee or charge.

10. 1991 April - May Insurance Commissioner, business interests, and insurers negotiate a bill to: Deregulate rates Phase out Facility Create the Fund August Special Session Bill passes. Mandates Fund open for business 1-1-92. November 1 First Board of Directors meeting

11. Fund Creation April 1991: Legislative discussion of creating a State Fund 1990 Market: 4.2 billion Fund Capacity: $300 million in bonds 3:1 surplus ratio 3 x $300 million = $900 million About 25% of total market - to assure competitive impact on the market

12. 1992 1-1-92 Fund begins writing policies Trial court rules SB1 unconstitutional

13. Written Premium 3 4 5 1 2 1 1993 – Court of Appeals upholds trial court ruling that SB1 is unconstitutional. 2 1994 – “Fund” spends $100 million for bond defeasance/retirement. 3 1995 – Texas Supreme Court rules SB1 constitutional. 4 1998 – “Fund” spends $81.6 million for bond defeasance/retirement. 5 1999 – “Fund” spends $61.9 million for bond defeasance/retirement.

14. Texas Workers’ CompensationMarket Premium 1 2 11992 – Deductible policies available 21993 – Self insurance available

15. Market Share

16. Texas Workers’ Compensation Insurance Fund Bond and Surcharge Repayments 1999 - HB3697 filed to appropriate $200-400 million of TWCIF surplus to state’s General Revenue Fund Concept rejected by key legislators; bill changed to refund all maintenance tax surcharges paid 1992-1997 to policyholders. 1999-2002 - $179 million in maintenance tax surcharge refunds pursuant to HB3697, plus over $800,000 in publication expenses to find policyholders due refunds

17. October 2000, House Business and Industry Committee study: “The money held in surplus is for the current and future claims against policies that the Fund has or will write. In effect, this money is held in trust for those employers to cover the needs of their injured workers.” “Further, …if the Legislature chose to reappropriate monies from the surplus the Fund policyholders would have legitimate standing for a judicial challenge, and based on outcomes of similar cases in other states they would likely win under the current statutory language. This further strengthens the argument that these monies are first and foremost for the benefit of the policyholders.”

18. December 2000 Texas Comptroller published report recommending TWCIF be sold and proceeds put in state’s “rainy day” fund.

19. 2001: HB3458 - Why? Chairman Brimer: “Well, it seems…that we’ve had…a Governor and the Comptroller...[try] to grab…surplus and put it in general revenue. … When you do a mutual company concept, the policy payers get…dividends back on the savings. So, we don’t have to worry about the state keeping the savings, the people that pay the premium will get the savings back in the form of dividends. That’s the reason for the mutual concept.”

20. 2001: HB3458 - Why? Chairman Brimer: “The Fund will have the same statutory mandates that the Fund does now acting as the insurer of last resort. The company will continue to serve as a competitive force in the market and will guarantee businesses that comp coverage is available to them.”

21. 2001 – A New Odyssey HB 3458 Changed name to Texas Mutual Insurance Company Mandated that we operate as a mutual Stronger pledge from State not to touch the money Removed company from Sunset review Removed cumbersome requirements Four of nine board members to be elected No changes to mandates to Be competitive force in market Guarantee availability Act as insurer of last resort

22. What Have We Done So Far? (Through 2008) Policies Written - 720,233 Premium Written - $8.6 billion Claims administered - 572,036 Voluntary bond payments - $243.5 million Maintenance tax surcharge repayments - 179.8 million Policyholder dividends* - $649.1 million $1.072 billion Year-end 2008 Policies in force – 47,947 Covered employees – 924,000 + Premium in force – $682.7 million Total assets – $3,413,750,028 Total liabilities – $2,478,668,367 Policyholders’ surplus – $924,889,431 *Includes some purchasing group dividends in all years except 2000.