The Texas Legislature introduced bills last week that would sever the last controls the state has over Texas Mutual Insurance Co.—its largest workers'-compensation insurer—while authorizing the state to set up an assigned-risk plan.

Under bills introduced in both the state House and Senate, TMIC policyholders would be able to elect a majority of the company's governing board of directors and determine the chairman of the board, therefore making policyholders what TMIC officials said will be the “ultimate decision-makers” for the company.

The bills are S.B. 850 and H.B. 1833.

TMIC is the largest workers'-comp insurer in the state. During 2012, Texas Mutual wrote $935 million in coverage, more than $100 million beyond its previous high.

Terry Frakes, TMIC senior vice president of public affairs, said TMIC has approximately 34 percent of the Texas workers'-comp market.

Texas Mutual was originally created in 1991 as the Texas Workers' Compensation Insurance Fund because workers'-comp capacity had become severely limited in the state because of a financial crisis created by the collapse of the oil market.

Its goal was to serve as a competitive force in the Texas workers' compensation insurance market and as the insurer of last resort. In 2001, the state began loosening its ties with TMIC.

Through various legislative actions, the only control the state now exercises is through appointment of five of the nine TMIC board members, Frakes said.

The bills would establish a new residual workers'-comp market and would give the state-insurance department the authority to set up an assigned risk plan, he said. The state would accept bids from insurers willing to become the market administrator.

Ultimately, oversight would come from the commissioners' office, Frakes said.

The legislation would become effective Jan. 1, 2015, if approved by the legislature and signed by the governor. Frakes explained that TMIC needs 18 months to make the change to privatization and does not want to lose tax exemptions on state funds that become reserves.

Frakes also said that while TMIC that is a workers'-compensation insurer of last resort, it has no market advantages over the private market except that it is exempt from federal income taxes, as are all of the more than 20 state funds that still exist in the U.S.

“TMIC is solvent, and we are regulated like any other carrier in the state,” Frakes said.

The Texas legislature only meets biennially and adjourns unless called into special session on May 27. The Texas Legislature won't convene again until 2015.

Bruce Wood, associate general counsel and director of workers' compensation programs American Insurance Association, said his group “is fully supportive of efforts to privatize TMIC.”

He says that under the proposed legislation, the company would achieve privatization “correctly and compete on a level playing field in the Texas workers' compensation market.

“All statutory preferences that favor a provider of last resort would be abrogated under the proposal,” Wood said.

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