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Small employers driven out of Texas comp system by high premiums, few injuries

Small employers driven out of Texas comp system by high premiums, few injuries

Small employers in Texas are driving an increase in the percentage of companies choosing not to carry workers compensation insurance, leaving the system partly due to high coverage costs and few employee injuries.

This represents a reversal from two years ago when more employers in the state were opting to carry workers comp coverage.

Texas is the only state that currently allows employers to choose whether to carry coverage, but Texas law requires that the legislature be updated biennially on the state of the system.

The number of Texas employers who do not carry workers compensation insurance for their employees increased 6 percentage points between 2016 and 2018, with 28% of employers not carrying coverage in 2018 compared with 22% in 2016, according to the latest biennial report on the state of the system released on Dec. 3. That same biennial report in 2016 found that the number of employers who opted out of the state workers compensation system decreased by 11 percentage points from 2014 to 2016.

Most of those companies opting to not have coverage between 2016 and 2018 are smaller employers: 36% have between one and four employees; 27% have between five and nine employees; and 16% have between 10 and 99 employees. Meanwhile, 20% of larger employers with 500 or more employees have opted out of the system, according to the report.

“It appears that that movement is in the smaller sectors,” said D.C. Campbell, Austin-based director of the Workers’ Compensation Research and Evaluation Group with the Texas Department of Insurance’s Division of Workers’ Compensation, which released the report.

“Small employers move in and out of worker comp based on premium rates,” said Bill Minick, chairman of Dallas-based PartnerSource, a consulting unit of Arthur J. Gallagher Risk Management Services Inc. that develops nonsubscription programs.

“These are companies that have very few claims, if any, and are just playing the costs from one market to another. Their interest (in workers compensation) follows the market.”

Of those who opted out, the report shows that 19% cited premiums that were too high as the reason, while 24% opted out because of having too few employees and the same amount said they had too few injuries, according to the report.

It’s not uncommon for small employers and small startups to choose not to get workers compensation cover, according to Trey Gillespie, Austin-based assistant vice president of workers compensation with the Property Casualty Insurers Association of America.

A robust economy could also be at the heart of the latest figures in Texas, Mr. Gillespie said, with more smaller businesses and an influx of construction.

“Subcontractors have historically opted out so they can bid lower to get jobs,” he said. 

While the employer numbers have changed, the employee figures have not, said Amy Lee, an Austin-based special adviser with the Texas Department of Insurance’s Division of Workers’ Compensation.

The percentage of Texas employees who work for nonsubscribers remained at 18%, representing roughly 1.8 million employees in 2018.

“It’s important to keep in mind that the percentage of private-sector employees covered has not changed,” she said

The last two reports show a healthy climate for comp insurance in Texas, Mr. Campbell added.

“This year and in 2016 reflect two of the highest subscription rates that we have had since 1993 — which inversely would be the lowest nonsubscription rates since 1993,” he said, of the year the state began collecting data.







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