Texas Workers’ Compensation Industry Update

While my kids are young, they always struggle with explaining what dad does. My oldest might actually recall an old analogy given by a former practice leader that ‘people pay him to do their math homework’. My youngest has been caught saying that I just write one email a day.

A more correct answer may be that actuaries are trying to put a dollar amount to risk, and for me that often happens to be workers’ compensation risk and liability. I have the good fortune to share with you some of my observations on the Texas workers’ compensation industry both from industry data and reports as well as our firm’s collective experience.

NCCI Rate Change: 11.5% Reduction

When I look at workers’ compensation risk, I start high level to see how the entire state is doing, and then dig deeper to understand all the drivers contributing to that overall trend. This year, the National Council on Compensation Insurance (NCCI) recommended – and the Texas Department of Insurance (TDI) approved – an 11.5% average rate reduction.

As reference, other large states saw flat or modest decreases. For example, Florida saw a 1.0% decrease. California (WCIRB) saw a similar 0.9% decrease. New York (NYCIRB) saw a 2.6% decrease. Among NCCI states, only Maine saw a higher decrease at 13.2%[1].

Further, Texas has seen year-over-year decreases for the better part of the last two decades, showing that 2025 is not an anomaly but a sustained trend of improvement.

As an actuary, the story cannot end there. Besides doing other classmates’ homework and writing very lengthy emails, actuaries must understand the drivers underlying the overall 11.5% rate reduction as it factors into our reserving and ratemaking assumptions.

Claim Frequency: Declining

One of the most consistent and powerful drivers of rate reductions over the past two decades has been declining claim frequency. Texas mirrors this national trend, but with some unique characteristics. According to NCCI data, claims per $1 million in payroll declined by approximately 8% from 2023 to 2024. This continues a broader trend of more than 40% reduction in frequency over the past ten years. TDI’s System Data Report (SDR) figures support this, showing that total claim counts fell from 114,245 in 2022 to 87,713 in 2024—a 23% drop. What makes this even more impressive is that it occurred during a period of payroll growth, meaning that Texas is experiencing fewer injuries relative to both workforce size and economic activity. There are a few reasons why, some of which are common to the industry countrywide and some are unique to Texas.

Some reasons common across the country include increased investment in workplace safety, better training programs, and the adoption of automation technologies that reduce manual labor risks. But where Texas has been unique is from enacting state-specific reforms and experiencing changes in industrial mix. Notably, the 2005 House Bill 7 marked a turning point in the state’s workers’ compensation system, introducing sweeping changes that improved efficiency and accountability. Subsequent legislation, including HB 2605 in 2011 and the Pharmacy Formulary Implementation between 2011 and 2013, further strengthened the system.

Texas’s industrial profile also plays a role. The state has a higher proportion of workers in sectors like oil and gas, construction, and manufacturing—industries[2] that historically carried higher injury rates. However, these sectors have benefited disproportionately from automation and safety technologies relative to other industries which have helped reduce both frequency and may also contribute to lower severity by limiting exposure to high-impact injuries. Additionally, the growth of tech hubs in cities like Austin and Dallas has shifted the workforce composition toward lower-risk occupations. This shift in industry and overall risk mix has had a distinct impact on overall claim rates.

Another unique feature of the Texas system is its non-subscriber option, which allows employers to opt out of the state’s workers’ compensation system and provide alternative coverage. While this approach has its critics as claim outcomes have varied widely, it has arguably introduced competitive pressure for insurers and subscriber employers to improve efficiency. The result is a system that, while complex, has multiple forces acting to simultaneously drive better efficiency.

Claim Severity: Stable

In many states and as we’ve seen with our clients, frequency may be declining but it is offset to some degree by increasing severity. Texas is in the same ballpark but appears to manage costs better than the broader industry, particularly on the medical side. A major driver of this was from Texas implementing a mandatory, outpatient closed formulary for WC claims in 2011, making it one of the first states to do so. In the decade following, total pharmacy claims declined by 57%, and the average pharmacy cost per claim dropped by 39% but, most astonishingly, opioid non-formulary drug costs fell by 97%[3]. These reductions are not only significant—they’re among the most dramatic in the country.

The 2024 Health Care Cost and Utilization Report[4] confirms that these trends continued through 2023. Pharmacy service costs declined by 40%, the number of claims with pharmacy services fell by 35%, and the average lost-time pharmacy cost per claim decreased by 12%. While other states have seen similar trends, Texas’s reductions are more pronounced and sustained. In some jurisdictions, pharmacy costs per claim are increasing, making Texas’s performance all the more notable.

Another factor contributing to stable severity is the use of Certified Health Care Networks (HCN). These networks have outperformed non-network providers in terms of cost, efficiency, and outcomes. Although the System Data Report does not break out data by network status, the 2024 report shows that total health care costs declined by 14% between 2018 and 2023. During the same period, hospital claim counts fell by 25%, and total hospital costs dropped by 23%. The 2022 WC Network Report Card[5] also highlighted better return-to-work outcomes and higher injured worker satisfaction among network participants.

Taken together, these trends suggest that Texas is not only experiencing fewer claims but also managing those claims more effectively. This dual improvement in frequency and stable severity is rare and speaks to the strength of the state’s regulatory framework, industry practices, and data-driven decision-making.

Considerations for Non-Actuarial Stakeholders

For employers, the 11.5% rate reduction presents a continued opportunity to reevaluate their workers’ compensation programs. Expected loss rates should be updated, and experience modification factors monitored to reflect the new environment. Employers should also consider introducing new technologies and AI tools which can improve long-time return-to-work programs or lead new loss prevention initiatives.

Brokers and third-party administrators have a role to play as well. They should encourage clients to review payroll classifications and reported exposures to ensure they accurately reflect current risk profiles. Lag time monitoring and provider efficiency should be emphasized as key strategies for limiting claim volatility and improving outcomes. And like employers, brokers and TPAs can also sharpen their AI toolkit and ensure actionable data insights are not left undiscovered.

The 2025 SDR highlights some areas in which to begin looking:

• Top cause of injury: lifting and overexertion
• Top diagnosis: strain
• Top mechanism: slip, trip, or fall on same level (6,927 cases in 2024)
• High-claim counties: Harris, Dallas, Tarrant, Bexar, and Travis
• High-risk industries: construction, healthcare, warehousing, food service

Considerations for Actuarial Stakeholders

Actuaries and carriers must be mindful of a number of areas.

First, actuaries must monitor the credibility of their Texas exposure and not blend it with other states with potentially differing experience. This includes monitoring frequency and severity assumptions, tail factors, and ultimately the impact to Incurred But Not Reported (IBNR[6]) estimates.

Second, actuaries must consider the mix of business in their analyses, especially if they are prone to changing quickly in a short time span like with Professional Employer Organizations (PEOs) and Staffing firms. An analysis only utilizing payroll as the exposure base will be blind to such shifts in industry mix.

Third, a potentially increasing proportion of medical-only claims could alter claim closure patterns, which has implications for triangle projections and reserve development. In the same vein, faster claim resolution can flatten the reserve tail which could support shorter loss development patterns.

Naturally, depending on the impacts, the resulting effects can be quite disparate which also depend on the environment. For example, loss-sensitive programs, loss portfolio transfers, captives, and self-insured groups all may have different considerations given their different structures.

Looking Ahead: What to Watch

While the current performance of the Texas workers’ compensation system is impressive, several emerging issues could influence future models. Rising medical costs are one of the largest drivers of increasing rates in other states, and Texas should be mindful of these trends. Mental health and psychosocial claims are still rare in Texas, but they are gaining traction nationally and could become more prevalent. Cumulative trauma claims, such as those involving repetitive stress injuries, are harder to measure and litigate but may increase in frequency. The aging workforce presents another challenge, especially in labor-intensive industries where older workers may be more susceptible to injury and slower to recover. Technology and automation are also reshaping job roles and injury patterns, introducing new risks that may not be fully captured by traditional models. Finally, while telemedicine has proven efficient in the short term, there is concern about long-term cost creep and the difficulty of controlling expenses in a virtual care environment.

Final Thoughts

As an actuarial consultant, it’s intriguing to watch this all unfold, with frequency and severity trending favorably thanks to years of systemic improvement, behavioral change, and data-backed decisions. More importantly, all of this results in a risk ecosystem that better cares for injured workers and prevents workers from being injured or hurt in the first place. If you’re an employer reevaluating your program, an insurer setting reserves, or a risk manager modeling trend impacts, consider the trends noted in this article and leverage it to drive better results in your own workers’ compensation sphere of influence.