Proposed Rule Would Change Requirements for Non-Subscriber Policies

Monday, April 30, 2018 | 0

In the only state where workers' compensation is voluntary, authorities are updating regulations that say exactly what agents and brokers can say when they sell alternative work-injury coverage for employers who choose not to subscribe.

The Texas Department of Insurance on Friday posted an informal draft rule on such alternative insurance plans. The draft rule pertains to Insurance Code Section 541.051, “misrepresentation regarding policy or insurer,” and Labor Code Section 406.052, “effect of other insurance coverage.”

Texas does not require most private employers to have workers' compensation insurance coverage. Those who don’t are referred to as non-subscribers. They may purchase other types of coverage instead, such as accident and health or disability policies. But TDI prohibits insurance companies from representing alternative coverages as substitutes for workers' comp.

TDI spokesman Ben Gonzalez said there have not been recent problems with misrepresentation of the alternative policies that TDI is trying to address through the new rule. Rather, the rule would clarify the types of coverage that must be disclosed as not workers’ compensation insurance.

The current rule identifies those coverages broadly as “coverage which provides benefits to employees.”

The draft rule would be more specific. It would require disclosures for “coverage that provides benefits to employees for occupational injuries, disease or fatalities; provides employers liability coverage; or indemnifies employers without workers’ compensation insurance coverage for all or part of the costs of occupational injuries, disease or fatalities.”

The draft rule would also requires that a disclosure now be provided in the application that is filled out for such coverage, emphasizing that the coverage is not a workers’ comp policy. The new rule would keep a current requirement for such a disclosure on the first page of the policy and on the first page of all materials used in advertising, marketing and explaining the policy.

Gonzalez noted that the rule has not been updated since it was adopted in 1992. Government code requires state agencies to periodically review rules to see if they need updating.

Trey Gillespie, assistant vice president for workers’ compensation at the Property Casualty Insurers Association of America, said the association was still evaluating the draft rule and its potential impact on the marketing of workers’ compensation alternative coverage.

“We are concerned that the updated notice language in the proposal eliminates the requirement to warn the employer that it will be losing some protections under the Workers' Compensation Act with those substitute policies and plans,” Gillespie said.

For coverages that fall under the new regulation, the rule would require a statement to be included — in 10-point bold type — on the first page of the policy application, the first page of the policy and on the first page of all materials used in advertising, marketing and explaining the policy. 

The statement would say: "This is not a workers’ compensation insurance policy. By purchasing this policy, the employer does not obtain workers’ compensation insurance coverage. Employers without workers’ compensation coverage must comply with Texas state law as it pertains to required notifications that must be filed and posted.”

But the new rule also removes this wording: “The employer does not become a subscriber to the workers’ compensation system by purchasing this policy, and if the employer is a non-subscriber, the employer loses those benefits which would otherwise accrue under the workers’ compensation laws.”

Certificates provided to employees under group policies covered by the proposed rule would be required to say, in English and Spanish, that the coverage is not a workers’ comp policy. Workers would be advised to ask their employer whether workers’ comp coverage is provided.

Bill Minick, chairman of PartnerSource, a provider of workers’ comp alternatives, said insurance companies and agents have been complying with the current rule, which in many ways is essentially the same as the proposed draft. One of the substantive changes he noted was the requirement to add a notification to employees in Spanish, “which is great,” he said.

On the other hand, a new requirement in the proposed rule appears to say that an insurance agent can’t even mention the term “workers’ comp”  when marketing a nonsubscriber insurance policy.

“From a practical standpoint, that second change should be looked at further,” Minick said.

Minick also commended TDI for seeking input on potential cost impacts of the proposed rule.

“There could be significant expense in revising not just policy forms, but certificates of insurance and all kinds of marketing materials, research and white papers, company brochures, etc.,” he said.

The public comment period on the informal draft rule will close at 5 p.m. May 14. Written comments may be submitted to Doug Danzeiser in the Life and Health Lines Office at LHLcomments@tdi.texas.gov.

In addition, TDI will host a stakeholder meeting in Austin to discuss the draft rule, from 1:30-3:30 p.m. May 11.