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AUSTIN, Texas-Seventeen Texas workers compensation insurers are primarily responsible for workers compensation policyholders being overcharged by 4% to 17%, and have until Feb. 1 to justify or reduce their rates, says the Texas Department of Insurance.
If they do neither, they face possible hearings on rate rollback requirements, says the department's chief property/casualty actuary in a letter to the chief executives of the insurers.
The insurers-which through 74 operating companies wrote $290.8 million in 1994 workers comp premiums, or 14.7% of the Texas market-contend that their rates are appropriate and that Texas businesses are paying far less for coverage than in previous years.
Regulators counter that the rates are too high and do not reflect the effect of a 1989 reform law that the State Supreme Court upheld last year (BI, Feb. 13, 1995).
"These letters should come as no surprise to the insurance companies," said Insurance Commissioner Elton Bomer. "The carriers have known for months of my concern that workers compensation rates are too high, particularly for small businesses."
Some insurers did actually file rate reductions after Mr. Bomer asked insurers at May 1995 hearing why rates weren't falling faster. Others left rates alone and still others failed to respond to the commissioner's request for information. The department's "patience has worn thin and we're carrying out the responsibility the Legislature gave us to challenge excessive rates," Mr. Bomer said.
State data show that workers compensation losses have fallen sharply since the reform law took effect in 1991. Losses dropped 80.9% to $743.4 million in 1994 from $3.9 billion four years earlier, and over the same time the loss ratio for the line fell to 38.7% from 94.9%.
The insurance department contends that the 17 insurers are the main culprits keeping workers comp rates 4% to 17% too high, based on loss experience, for Texas businesses. Those figures are part of a recent analysis by the department's actuarial consultant, which also indicated that workers comp losses were between 52% and 57% lower than they would have been without reforms.
Under Texas law, workers comp insurers can use rates as soon as they are filed with the insurance department and the commissioner has the authority to disallow the rates after holding public hearings.
If insurers don't cut their rates or justify them to the insurance department, the next step could be hearings, according to a spokesman for the department.
Receiving letters were: Aetna Casualty & Surety Co., Allstate Insurance Co.; American States Insurance Co.; General Accident Insurance Co.; Great American Insurance Co.; Gulf Insurance Co.; Houston General Insurance Co.; Indiana Lumbermens Mutual Insurance Co.; Nationwide Mutual Insurance Co.; Old Republic International Corp.; Reliance National Insurance Co.; Royal Group Inc.; Sentry Insurance Co.; State Farm Mutual Automobile Assn.; Tokio Marine & Fire Insurance Co.; Unitrin Inc.; and Zurich-American Insurance Group.
Insurers say rates are lower as a result of the reforms and businesses are paying far less for coverage unless their loss experience calls for a higher rate.
"I would be very surprised if these companies' rates are very far from current market prices," said Rick Gentry, regional vp of the Insurance Information Institute in Austin. "Everybody knows that the workers comp market today in Texas is very competitive. If you don't stay pretty close to the pack, you won't have any customers."
Mr. Gentry said published rates can be deceiving because they don't reflect discounts that many large companies receive. Companies "generating as much as $100,000 a year in premiums are probably paying 40% to 50% less than what they were two or three years ago, unless their loss experience is just plain terrible," he said.
Small companies, however, aren't generally eligible for the same kinds of discounts as big buyers.
"A lot of (small) companies have seen a flattening or lowering of rates, but as the commissioner correctly pointed out, those decreases have not been in step with the dramatic decreases in costs," said Pam Beachley, president of the Business Insurance Consumers Assn., an Austin-based coalition of trade associations representing about 60,000 Texas companies.
Ms. Beachley said small employers aren't screaming about high workers comp rates because the steady prices they have seen in recent years are a relief from double-digit increases they experienced before the reforms were passed. Employers may become more vocal now, however, as they become aware of the insurance department's figures showing workers comp insurers' loss ratio at 38.7% in 1994, she added.
"We applaud Commissioner Bomer for taking this step," Ms. Beachley said. "Given the numbers they have, we don't think he could sit back and let insurers continue to charge the rates they are charging. They clearly couldn't be justified as reasonable."
However, one of the insurers targeted by the department's letter said its small policyholders are getting a break.
Aetna's Farmington Casualty Co. subsidiary recently chopped workers comp rates for small business policyholders in Texas, an Aetna spokesman said. "Seventy-five percent of our small business comp in Texas is written in that company."
Other Aetna insurers have not cut workers comp rates in Texas because there is no indication that one is warranted, the spokesman added.
He said all Aetna's rates in Texas can be supported by actuarial data.
State Farm also implemented a rate reduction before the letter was mailed and the insurance department is studying that filing to determine whether the cut is deep enough, the spokesman said.
Mr. Gentry said he expects all the insurers will respond promptly to the insurance department's letter and "I anticipate that each of them will pretty much tell the same story. That is, rates are lower than they have been in years and the 1989 reform law is working as expected."