Our Long-Term Vision: A Stronger, More Competitive WC System

Texas Mutual to Pursue Independence from State

Texas Mutual Insurance Company operates on the simple principle that if something is good for our policyholders and their employees, it is good for us. With that in mind, our board of directors has directed the company to pursue an initiative that would sever our few remaining statutory ties with the State of Texas during the 2013 legislative session.

If approved, the initiative will strengthen the Texas workers' compensation system and safeguard Texas Mutual's ability to provide a stable, competitive source of workers' compensation insurance for Texas employers and their employees.

This Web page provides more information about this initiative, which we call the Long-Term Vision (LTV) initiative.

Why is Texas Mutual seeking independence from the State of Texas?

Our fundamental objective is to ensure long-term stability for the Texas workers' compensation system and for Texas Mutual, which would enable us to continue to provide our policyholders with competitive rates, excellent service and dividends.

Texas Mutual has made a permanent commitment to remain a competitive force in the Texas workers' compensation system. Gaining independence from the State would safeguard our ability to keep that commitment, regardless of economic, market or political conditions. As long as Texas Mutual is a creature of the State, we are vulnerable to dictates driven by political agendas.

How would this affect my workers' compensation coverage?

Simply put, the transition would be seamless for our policyholders. Texas Mutual would remain a policyholder-owned mutual company singularly focused on serving you. We would continue to offer competitive rates, pay dividends when financial conditions allow and deliver industry-leading workers' compensation services.

How would this impact business for insurance agents?

Just as this transition would be seamless for policyholders, it would also be seamless for agents. Agents would continue to be our partners in bringing Texas employers and employees competitive rates, excellent service and dividends.

Why is this initiative in my best interests, as a policyholder?

There are many reasons LTV is in the best interests of our policyholders and the Texas workers' compensation system as a whole. Here are three of them:

  1. It protects your company. Texas Mutual is financially secure because we underwrite responsibly, invest conservatively and manage our costs prudently. This ensures your employees will be taken care of if they are injured on the job. When we succeed, we share with our policyholders who have contributed to that success via dividends. By the end of 2012, Texas Mutual will have paid $1.2 billion in dividends. The majority of that total—more than $1 billion—will have been paid since 2005. At some point, the ever-changing dynamics of the political system will be a destabilizing factor. As long as Texas Mutual is a creature of the State, it is vulnerable to dictates driven by political agendas. Future legislatures could mandate that we take on additional responsibilities under conditions that could jeopardize our ability to continue to serve our core mission. For example, we could be required to take over a large, troubled program without sufficient time or resources to handle it.
  2. All board members are accountable to policyholders. Our current board of directors includes five governor-appointed members, including the chair, and four policyholder-elected members. Our enabling statute prohibits anyone who has even remote ties to insurance from serving on the board. LTV would allow policyholders to elect all nine board members from any industries they see fit, including individuals with experience in insurance. Each board member would be solely accountable to the company's policyholder owners.
  3. It creates a stronger workers' compensation system. By law, Texas Mutual is the only insurance company currently allowed to provide coverage to the residual market, which covers employers that cannot secure workers' compensation insurance from other insurance companies due to high-risk operations or poor accident histories. Texans deserve a residual market that is stronger than any single carrier. We propose that all insurance carriers providing coverage in Texas share the residual market, similar to how it is addressed in many other states, which would strengthen the residual market over the long term.

Would members of Texas Mutual's board or management gain financially from the company becoming independent of the State?

No. Texas Mutual would continue to be a mutual, owned and governed by its policyholders. The current board and management have no financial interest in the proposed transition.

What is the impact on small businesses and the small policyholder?

Small employers are a very important market segment for us. They make up approximately 60 percent of our in-force policies. Texas Mutual would continue to serve small-business employers.

We have invested significant resources to develop a successful small-business program that includes a number of online tools. With the technological advances we and other insurance carriers have made, the small policy market is as attractive as any other group of policyholders in any market.

What would happen to the residual market?

The residual market includes employers that cannot find workers' compensation coverage due to high-risk operations or poor accident histories. LTV includes a solution in which all insurance companies providing coverage in Texas would participate in the residual market, similar to how it is addressed in many other states. This would make the residual market more stable and sustainable over the coming years because it would not rely on just one insurer. It would also provide the Texas workers' compensation system with a much-needed safety net in case the current business climate should begin to deteriorate.

The proposed residual market program is based on each insurance company's market share, as is the case in many states. Because Texas Mutual has the largest market share in the State, we would still be responsible for the largest portion of the residual market.

Would LTV make the overall Texas workers' compensation system less stable?

No. Texas has a vibrant workers' compensation market, and Texas Mutual is operating as if it were an independent mutual right now. Gaining independence from the State would protect the market and Texas Mutual in the future.

Does Texas Mutual have the support of the Legislature?

Texas Mutual has been meeting with legislators, policyholders, business leaders, insurance agents and other stakeholders to gauge the feasibility of this plan. These conversations have not identified any position of opposition, and to date, most of the responses have been positive and supportive.

In fact, since 2001 as the market has become stronger, the Legislature has been steadily reducing the State's involvement with Texas Mutual by:

  1. Reducing the number of gubernatorial appointees from nine to five (2001)
  2. Repealing the attorney general's oversight (2001)
  3. Removing the company from Sunset Review (2001)
  4. Repealing the state auditor's oversight (2003)
  5. Removing the open meetings and open records law requirements (2007)

LTV is just the next logical step in the process of becoming an independent mutual insurance company.

Would this impact Texas Mutual's current business operations?

No. Texas Mutual's leadership team has been operating independently of the State for more than a decade, and the State is not involved in the company's decision-making process. Texas Mutual's successes in innovation, customer service, market share and ability to pay dividends are attributable to leadership of the company's board of directors along with the management and staff working in partnership with agents and policyholders.

What is the risk to the State?

There is no risk to the State. The State has no financial responsibility in the operation of Texas Mutual, and Texas is a very attractive market for insurers providing workers' compensation. The proposed solution does not require any funding from the State or taxpayers. The State will continue to regulate Texas Mutual, just as it regulates other insurance companies. Additionally, LTV strengthens the residual market because it includes a solution in which all Texas carriers would participate, similar to how it is addressed in many other states. This would make the residual market more stable and sustainable over the coming years because it would not rely on just one insurer.

Why is Texas Mutual currently tied to the State?

Texas Mutual was created in 1991 as part of the significant system reforms that were enacted to correct major problems with the workers' compensation system. The reforms worked, and the original reasons for Texas Mutual's creation no longer exist. Since 2001, as the workers' compensation system has improved, the Legislature has steadily reduced the State's involvement with the company to allow it to operate as a competitive insurance company.

What are the next steps?

LTV's success will hinge on the Legislature passing a bill that would transition Texas Mutual into an independent mutual insurance company and on the governor approving the bill.

The next legislative session convenes on Tuesday, Jan. 8, 2013. In the meantime, Texas Mutual will continue to work closely with legislators, regulators, staff, insurance agents and policyholders to lay the groundwork.

What if I have additional questions?

If you have additional questions, we encourage you to attend one of our free workers' compensation workshops. A representative from our executive team will be on hand to give you an overview and answer your questions.

If you have questions and are unable to attend, please send an email with your questions to publicaffairs@texasmutual.com.

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