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Oklahoma's workers comp opt-out law will serve as a prototype for other states

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Oklahoma's workers comp opt-out law will serve as a prototype for other states

Oklahoma will emerge as a testing ground for the insurance policies employers will need should more states allow companies to opt out of traditional workers compensation systems, observers predict. In May, Oklahoma Gov. Mary Fallin signed into law legislation allowing employers to implement injured employee benefit plans as alternatives to the state's existing workers compensation coverage requirements.

The law is expected to generate demand for new insurance policies that help employers provide health benefits and compensate Oklahoma employees for occupational injuries, several sources said.

Those policies could serve as prototypes and may help lay groundwork for allowing employers in other states to manage injury benefit plans as alternatives to purchasing workers comp coverage, they added.

“I most definitely believe that Oklahoma's new law will produce a new standard (insurance) product,” said Becky Robinson, assistant vice president of risk management at Oklahoma City-based retailer Hobby Lobby Stores Inc. “The freedom to be creative with the new insurance product will provide competition, and indeed a test, on how other states may move forward with similar legislation.”

For now, underwriters that currently provide insurance products for employers opting out of Texas' workers comp system — called nonsubscribers — are evaluating how they might structure forms for neighboring Oklahoma employers who will manage their own occupational injury benefit plans as alternatives to the state's traditional system for compensating injured workers, insurers and brokers said.

“There is great interest” among underwriters providing employer liability and employee health benefit products for Texas nonsubscribers, said Jerry Murphy, Dallas-based executive vice president for wholesaler AmWINS Brokerage of Texas.

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National employers with nonsubscriber programs in Texas will be among policyholders demanding products for their injured employees in Oklahoma, Mr. Murphy said.

“There is a pressure from (insurers') existing customer base to be responsive,” he added.

But Oklahoma's new law and Texas' decades-long practice of allowing employers to entirely opt out of its workers comp system are significantly different, observers say.

Texas employers who opt out, for instance, do not have workers comp exclusive remedy protection, so they can face open-ended civil lawsuits for employee injuries. And Texas nonsubscribers are not required to provide workers with any injury benefits, although many large employers prefer to do so.

To help injured employees with medical treatment, those Texas employers establish health plans governed under the federal Employee Retirement Income Security Act, sources said.

They typically purchase policies providing the health coverage for occupational accidents coupled with employer liability protection should an employee sue for negligence after a workplace injury, sources said.

Under Oklahoma's new law, in contrast, employers who implement their own occupational injury benefit programs still will be subject to several traditional workers comp system protections and mandates.

They will retain exclusive remedy protection and will be required to provide statutory — meaning unlimited — benefits to injured workers, several sources said.

That means Oklahoma's new alternative more closely resembles a traditional workers comp system than does Texas' opt-out alternative, said Dick Hinch, senior regional business development manager for Safety National Casualty Corp. in San Antonio.

“It looks and smells a lot more like workers comp than does the Texas (nonsubscriber model), because in Oklahoma they are saying, "You must provide statutory benefits,'” Mr. Hinch said.

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Yet observers expect the insurance coverage that will emerge in Oklahoma will share similarities with products now sold to Texas nonsubscribers.

“Broadly speaking, I think it will be in line with Texas (coverage) with an occupational accident form (coupled) with an employer's liability or employer's indemnity component, but with significant differences,” said Keith Rosenblum, senior risk consultant in Kansas City, Mo., for Lockton Cos. L.L.C.

Policies sold in Oklahoma may have to provide more encompassing coverage containing fewer exclusions than forms sold in Texas, Mr. Rosenblum said.

Those now sold in Texas, for example, may exclude coverage for psychological or psychiatric care and occupational disease.

But Oklahoma's new law requires employers to purchase insurance and mandates that employers provide workers with broader protections, sources said.

So illnesses excluded from Texas policies may not be excluded in Oklahoma, Mr. Rosenblum said.

Insurers will weigh such differences — and their liability implications — before deciding whether to engage in Oklahoma, observers said.

Other underwriters will want to provide coverage in Oklahoma to gain momentum should other states allow employers to adopt alternative, opt-out-style plans, Mr. Murphy said.

“I do believe it will be the future to some degree,” he said.