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Texas will be privatizing many functions in its workers’ compensation system if a staff petition to adopt the National Council on Compensation Insurance (NCCI) Basic Manual, with Texas exceptions, and the national and Texas-specific endorsements and forms in the NCCI Forms Manual, is approved by Texas Insurance Commissioner Julia Rathgeber.
Rathgeber has previously indicated that Texas likely will become an “NCCI state.” One question remains: When will the adoption go into effect?
Staff of the Texas Department of Insurance on Dec. 30, 2013, filed a petition to adopt the NCCI manual for workers’ compensation and allow NCCI to assume certain functions that traditionally have been administered by TDI’s Division of Workers’ Compensation. The proposal anticipates an effective date of June 1, 2014, for the transition to the NCCI model, according to TDI.
Insurance carrier trade groups, including the Insurance Council of Texas, have asked the commissioner to delay the effective date until Oct. 1, 2014, or later, in order to give companies time to adjust their underwriting systems to accommodate the changes.
NCCI is the largest provider of workers’ compensation and employee injury data and workers’ compensation statistics in the nation and is a licensed advisory organization in Texas, TDI said. NCCI currently administers certain workers’ compensation functions in 34 states plus the District of Columbia.
State regulators said it would be advantageous to some carriers and policyholders if Texas were to become an NCCI state. For instance, there would be greater consistency of rules for policyholders and carriers operating in or writing workers’ comp coverage in multiple NCCI states.
Transitioning to the NCCI model would subject both carriers and insurance agents to additional fees.
Currently costs for NCCI services to the top four national workers’ comp writers range from 11 cents to 18 cents per $100 of direct written premium, TDI said. These fees may be offset by the reduction in the workers’ comp maintenance taxes that carriers pay. NCCI additionally has developed a transition plan through 2015 that allows discounts for additional Texas services.
For agents, the annual fee for access to the NCCI Basic Manual, with Texas exceptions, and the national and Texas-specific endorsements and forms in the NCCI Forms Manual would be $50. Until June 1, 2015, agents will be offered free access to the manual, endorsements and forms listed above.
The proposed transfer of certain workers’ compensation system functions to NCCI is one aspect of TDI’s efforts to improve efficiencies, according to Commissioner Rathgeber.
“The proposal relates to … workers’ comp policy issuance and premium calculations, endorsements and forms. These functions were historically administered by TDI staff housed in Austin,” Rathgeber said.
In addition to streamlining the experience for policyholders operating in multiple states and for carriers writing workers’ comp in multiple states, “it also eliminates unnecessary government involvement and allows TDI staff to focus on other substantive issues in workers’ comp insurance,” Rathgeber said during a presentation at the Independent Insurance Agents of Texas’ Joe Vincent Management Seminar in late January.
The commissioner clarified, however, that “the proposal does not relate to the claims functions performed by the division of workers’ comp and the new manual will apply to policies that start after June 1st.”
The commissioner and TDI staff will continue to undertake other currently performed functions, including statutory requirements, even if Texas becomes an NCCI state, TDI said. Such functions include: 1) prescribing standard policy forms and a uniform policy; 2) approving non-standard forms and endorsements; 3) determining hazards by classifications; 4) requiring carriers to use the classifications determined for Texas; 5) establishing classification relativities; 6) adopting a uniform experience rating plan; and 7) developing and updating statistical plans, as necessary.
That the NCCI manual for Texas will be Texas-specific and the changes will be gradually transitioned in is good news for insurance agents and their customers, according to Lee Loftis, government affairs director for the Independent Insurance Agents of Texas.
Speaking at IIAT’s Joe Vincent Management Seminar, Loftis said it is expected that NCCI would take “a lot of things that we already have in the Texas manual and somewhat incorporate them into the Texas manual. That’s a good thing. It’s not going to be just totally where we have a total loss of class codes and rules and things that have been in place for a long time.”
Although the state may end up with the “pure NCCI” manual eventually, Loftis said the change will be gradual.
He said IIAT is concerned about whether negotiated experience modifiers, which have traditionally been used in Texas, will be continued under the NCCI plan. The association expressed that concern to representatives of NCCI, Loftis said, and suggested possible alternatives to simply doing away with the practice.
IIAT also advocated for the establishment of a system for resolving disputes between carriers and policyholders in Texas if the NCCI proposal is approved. Disputes in the past have been arbitrated by TDI staff, Loftis said. That ability to take disputes to a third-party arbitrator is important to agents and their customers, he said.
“We were pleased to find out that NCCI in 36 states has what they call a dispute resolution panel,” Loftis said.
Testifying at a February 18 hearing on the proposal, TDI’s Director of Workers’ Compensation Classification and Premium Calculation Nancy Moore, said that NCCI proposes to establish a workers’ compensation appeals panel for Texas. The panel would include five voting members to be appointed by the commissioner, one or more TDI staff and one non-voting member from NCCI. A member of TDI staff would serve as chair of the panel and would vote only in the event of a tie.
Insurance companies operating in the Texas workers’ comp system are supportive of the transition to the NCCI model in Texas, according to one Austin-based insurance carrier trade association.
Insurers, however, would prefer that the effective date of the transfer to the new system be delayed, the Insurance Council of Texas said in a written commentary addressed to Commissioner Rathgeber.
The ICT said that many of its member companies have asked that the effective date for the proposal be changed from June 1, 2014, to Oct. 1, 2014. The reason, the ICT said, is that the “companies will not be able to accomplish programming changes to their respective underwriting systems by June 1.”
Without a postponement in the effective date, “companies would only have a little over 2 months to attempt to request that IT resources be allocated, or in some cases reallocated, to make the needed programming changes. Many companies already have ongoing IT projects or other state requirements that are also competing for IT resources,” the ICT said.
The ICT suggested that if carriers were able to adjust their underwriting systems before Oct. 1 they should be allowed to go ahead and use the NCCI Texas-specific manual and forms.
Representatives from the Property Casualty Insurers Association of America (PCI) and the Association of Fire and Casualty Companies in Texas (AFACT) also spoke on behalf of a delay in the effective date.
At the conclusion of the hearing, Commissioner Rathegeber said she would review the comments and issue a decision on the petition at a later date.