Purchasing Group Helps Auto Dealers Cope with Workers’ Comp

Workers’ compensation insurance is problematic across the nation and legislatures in many states, including Texas and Oklahoma, are currently considering bills aimed at increasing the quality of workers’ comp systems and keeping a lid on costs.

In Texas, as in many states, the Department of Insurance allows businesses within the same industry to form purchasing groups for workers’ compensation insurance with an eye toward lowering premiums and improving claims experience. One such group is the Auto Dealers Workers’ Compensation Purchasing Group formed in 1999 by the Lone Star Auto Dealers Association in conjunction with Texas Mutual Insurance Company.

According to its program administrator, Brad Wicker, the group was formed to provide Texas franchised auto and truck dealers with a competitive option for workers’ comp insurance and to offer participating dealers a customized safety-training program to help reduce the incidence of accidents. Purchasing group members receive discounts on premiums and may periodically received dividends, depending on the claims experience of the group as a whole. Wicker pointed out that while dividends are not guaranteed, the group has received them for the past five years. Last year, nearly $110,000 was paid out to members of the group.

“With this being an open purchasing group, the agents have access to this program,” Wicker said. “The problem is they aren’t aware of it. They can submit the same business to Texas Mutual but if they don’t tell them to put it in our purchasing group so they can get the benefits of it,” their customers end up paying a higher price. He said he is currently working with around 30 agents across the state.

The safety component the purchasing group offers is a big factor in its success, both in attracting members and keeping costs down. Loss prevention services include on-site safety surveys and consultations; online claim reporting and online loss runs that help members analyze and correct loss trends; an extensive safety library; and seminars on workplace safety and return to work programs.

There are currently 64 members in the group, representing about $5 million in premium. Premiums for individual auto dealers range from around $5,000 to $500,000.

Terry Frakes, senior vice president of Public Affairs for Texas Mutual, said the company works with 21 purchasing groups from a wide variety of industries. Texas Mutual helps parties interested in forming a purchasing group to develop a plan of operation to submit to the Texas Department of Insur-ance. The plan must spell out how the group will operate, who is allowed in it, and membership requirements, among other things.

Frakes said once the plan is approved by TDI, “we as a carrier are able to make an arrangement with the particular group, in this case the Lone Star Auto Dealers, and they are able to go out and sell or promote their workers’ comp policy.

“The advantages are that under the group scenario, the members of the group who join and take out the policy, at the end of the policy year if the group as a whole meets certain expectations that are spelled out in the agreement–such as, their losses are low, they’ve had good experience–then they sometimes will get a discount at the end of the policy period,” Frakes said. He added that “grouping together on the front end they are able to get–many, many times–a reduction in the premium they would have paid had they gone out by themselves and gotten a policy.”

Topics Texas Auto Workers' Compensation