Self-insurance allows an employer to pay its own workers’ compensation losses rather than buy an insurance policy. In Texas, private employers can apply for a certificate of authority to self-insure workers’ compensation under Texas Labor Code Chapter 407 and 28 Texas Administrative Code (TAC) Chapter 114 with the Self-Insurance Regulation (SIR) section of the Texas Department of Insurance, Division of Workers' Compensation (DWC).
A private employer who is approved for a certificate of authority to self-insure is called a certified self-insurer (CSI). Each CSI is a member of the Texas Certified Self-Insurer Guaranty Association (TCSIGA).
Since workers' compensation coverage is not mandatory in Texas, private employers that do not buy insurance sometimes refer to themselves as “self-insured.” However, in the workers' compensation system, they are referred to as non-subscribers.
Self-insurance for workers’ compensation is available to private employers that qualify and that have operations in Texas.
Public entities such as cities, counties, school districts, any state of Texas agency, state college or university, or other public entity may self-insure under Labor Code Chapters 501-504. There is no application or approval process for these entities to self-insure.
To become a CSI for workers’ compensation in Texas a private employer with operations in Texas must:
- Have an estimated unmodified manual insurance premium for workers’ compensation of at least $500,000 in Texas, or at least $10,000,000 nationwide.
- Present audited financial statements.
- Have a qualifying financial rating:
- Dun & Bradstreet rating of 3A1 or better;
- Standard & Poor's rating of BBB or better;
- Moody's rating of Baa or better; or
- a qualifying tangible net worth to long-term debt ratio of 1.5 to 1 or greater, with minimum tangible net worth of $5 million.
- Post a security deposit of at least $300,000.
- Get excess insurance for at least $5 million per occurrence.
- Pay a non-refundable $1,000 application fee.
To get an application packet, call 512-804-4775 or email firstname.lastname@example.org. SIR's normal office hours are 8 a.m. to 5 p.m., Central time, Monday through Friday.
- After you give us your completed application, an account manager will contact you. The account manager will be your primary contact with SIR.
- SIR staff will review your application and contact you if they need more information.
- The SIR safety officer will also contact you to schedule an on-site safety program inspection.
- When the review is done, SIR staff prepares a report about the company including financial, claims, and safety information.
- If the company meets all statutory and regulatory requirements, SIR presents the report about the company to TCSIGA’s board of directors in a public meeting where they vote to recommend each application for approval and membership in TCSIGA.
TCSIGA’s board of directors has an open meeting on a quarterly basis to consider applications.
- With the approval of TCSIGA, the commissioner of workers' compensation can approve and issue a certificate of authority to self-insure. However, several items must be filed with SIR before a certificate of authority to self-insure becomes effective.
- Parental guaranty. If applicable, completed form(s) will be sent to you for signature.
- Security deposit. A security deposit in the amount determined by SIR in the form of a letter of credit, surety bond, or cash.
- Letter of credit - on DWC Form-223, Documentary Irrevocable Standby Letter of Credit, from a Texas or federally chartered bank with a branch office in Texas and with a long-term debt rating of A or better by "Moody's Statistical Handbook" or Standard & Poor's "Financial Institutions Rating". In addition, DWC Form-225, Self-Insurer’s Agreement to Post Documentary Irrevocable Standby Letter of Credit, must also be submitted.
- Surety bond - on DWC Form-210, Surety Bond for Certified Self-Insurance Liabilities, issued by a company authorized to conduct such business in Texas with an A.M. Best rating of B+ or better or a Standard & Poor's rating of claims paying ability of A or better.
- Cash – in U.S. currency.
- Signed qualified claims servicing contractor agreement (aka third-party administrator or TPA agreement). One complete copy of the contract for claims administration. Both the certified self-insured and the qualified claims servicing contractor must properly execute the contract. If actual financial costs are an addendum to the contract, it is not necessary to provide the financial information.
- Excess insurance coverage. Proof of excess insurance coverage from the excess insurance carrier with retention equal to or less than the security deposit. TCSIGA must be named as an additional insured in the event a CSI becomes an impaired employer.
- Once we approve the application and get the items listed above:
- We will issue a certificate of authority to self-insure for a one-year period.
- The CSI will be billed for taxes and fees (refer to program fees and taxes for information on fee assessments).
- The CSI becomes a member of TCSIGA and you will be contacted directly by them about requirements and obligations as a member.
- Annual renewal report: Several months before your current certificate expires, we will send you an annual renewal report to complete. SIR combines all yearly reporting requirements into the annual renewal report for your convenience. SIR reserves the right to ask for additional information, including loss information to analyze the continuing adequacy of the security deposit on file.
- On-site safety inspections: Upon initial application, the first renewal, and at least once every three years thereafter, the SIR safety officer will conduct an on-site safety program inspection of your Texas operations. Safety program inspections may be done at other times, as necessary.
- Actuarial reports: An actuarial report is required at least every third year. SIR may require an interim or special actuarial report if necessary.
- Covered locations: Your account manager should be told about any additions or deletions to your list of covered locations to make sure that the change is covered under the certificate. A request to add significant subsidiary operations or new subsidiaries may require an on-site safety program inspection before we can extend coverage under your certificate.
- Notice of intent to withdraw
- Ongoing regulation after withdrawal
- Modifying previously approved withdrawals
The CSI must send advance written notice of the intent to withdraw. The notice should show that the CSI has established an adequate program to pay all losses, including unreported losses from accidents or occupational diseases that happened during the period of operation as a certified self-insurer.
A CSI may propose to:
- transfer its self-insurance obligations and liabilities to an authorized carrier (Labor Code §407.045(a-1) and 28 TAC §114.16); or
- establish a program of ongoing claims administration in which the CSI will continue to be subject to ongoing regulation (Labor Code §407.045(a)).
Contact your SIR account manager for more information and recommended content for the notice of intent to withdraw. After getting your notice, SIR will prepare a report summarizing the plan you have outlined. This report will be given to TCSIGA for review and to the commissioner of workers' compensation for approval. Once your withdrawal plan is approved, an order will be issued showing that your company withdrew from the program.
For CSI’s that have established a program of ongoing claims administration, SIR will continue to monitor your payout plan. Each year these withdrawn CSI’s must continue to report on the claims it incurred during its period of certification, maintain a security deposit, and have ongoing contracts for claims administration and an Austin or Travis County representative. Actuarial reports and annual financial statements will still be required. Safety program inspections are not conducted after withdrawal.
Before 2019, CSIs that withdrew did not have the option to transfer residual self-insurance obligations and liabilities; instead, they established a program of ongoing claims administration. These CSIs may ask to modify the terms of withdrawal and transfer self-insurance obligations and liabilities to an authorized carrier under 28 TAC §114.16.
To complete your obligations and get your security deposit returned, CSI’s should transfer residual self-insurance obligations and liabilities to an authorized carrier under an approved policy. CSI’s should contact their SIR account manager for more information.
- Regulatory fee
- Maintenance tax
- Research maintenance tax
- Texas Certified Self-Insurer Guaranty Association fees
The regulatory fee covers DWC’s cost to administer the self-insurance program. The fee is charged to each individual CSI on a pro rata share based on the ratio of income benefits made by each CSI to all CSIs combined. This fee is initially based on estimated yearly administrative costs and an estimated total of all CSIs' income benefit payments. A final assessment is made the following calendar year based on the actual total administrative costs of the self-insurance program, as well as the actual total of all CSIs' income benefit payments. The difference between the final assessment and initial estimated fee is credited on the next year’s invoice. [Labor Code §407.102]
The maintenance tax covers the cost of administering the Labor Code. It covers the operations of DWC, excluding the cost to administer the self-insurance program, which is paid directly by CSIs through the regulatory fee. This billing is done on a yearly basis at the time of certification.
The maintenance tax is based on the individual company's amount of liabilities for Texas workers' compensation claims that happened in the previous year including claims incurred but not reported (IBNR), plus the amount of expense incurred by the CSI multiplied by 1.02. This tax base is multiplied by the rate charged by DWC to all insurance carriers, which is subject to a limit of two percent. [Labor Code §§407.103, 403.002, and 403.003]
TDI is authorized to set a maintenance tax rate to fund activities related to certain workers' compensation research functions. SIR collects a workers' compensation research maintenance tax on TDI’s behalf. This billing is done on a yearly basis at the time of certification.
The Workers' Compensation Research maintenance tax is based on the same CSI tax base as the DWC maintenance tax. The tax base is then multiplied by the rate charged to insurance carriers, which is subject to a limit of one-tenth of one percent.
The example in this section is based on costs for the 2019 calendar year. Applicants can use these estimates for planning purposes in evaluating their own costs if the applicant were to become a CSI.
Example of CSI’s annual costs:
$9,706 Regulatory fee ($250,000 / $17,000,000 x $660,000 = $9,706)
$20,000 Maintenance tax ($1,000,000 x 2.0% = $20,000)
$340 Research maintenance tax ($1,000,000 x 0.034% = $340)
$30,046 Total annual costs for example CSI
The example above used the following assumptions:
$250,000 - Example CSI’s income benefit payments paid in prior year*
$1,000,000 - Example CSI’s tax base (amount of liabilities for Texas workers' compensation claims that occurred in the previous year** including claims incurred but not reported, plus the amount of expense incurred by the CSI multiplied by 1.02)
$17,000,000 - Estimated total of all income benefits for all CSI’s combined
$660,000 - Estimated total regulatory fees
2.000% - Maintenance tax rate
0.034% - Research maintenance tax rate
*The preceding calendar year is translated as the most recent year for which all CSIs can report calendar year-end totals. For example, CSIs certified with an effective date in 2019 are invoiced on income benefit payments made in 2017 for claims occurring in 2015, 2016, and 2017. Claims occurring within a three-year time frame are used to stabilize regulatory fee changes between the years due to fluctuating benefit payments.
** The previous year is translated as the most recent year for which all CSIs can report calendar year-end totals. For example, companies certified with an effective date in 2019 are invoiced on liabilities for claims occurring in 2017. [Labor Code §405.003]
TCSIGA is required to maintain a Texas certified self-insurer guaranty trust fund of at least $2 million for the emergency payment of the compensation liabilities of an impaired CSI. TCSIGA bills an assessment for this fund and assesses fees to cover various costs of TCSIGA. TCSIGA bills separately from DWC. Inquiries about TCSIGA's fees should be directed to the executive director of TCSIGA at (817) 456-6727. [Labor Code §407.126]
Public entities such as cities, counties, school districts, any Texas state agency, state college or university, or other public entity may self-insure under Labor Code Chapters 501-504. DWC does not certify or approve public self-insured entities or their self-insured groups. While there is no self-insurance application and approval process for these entities to self-insure, DWC Form-020SI, Self-Insured Governmental Entity Coverage Information, may be required.
To contact Self-Insurance Regulation
Telephone: 512-804-4775 or 800-252-7031 x44775
SIR's normal office hours are 8 a.m. to 5 p.m., Central time, Monday through Friday.
To contact group self-insurance
SIR does not regulate private employers that have established a workers' compensation self-insurance group under Labor Code Chapter 407A. Group self-insurance is regulated by TDI and can be reached at email@example.com.
To contact self-insurance for motor vehicles
TDI does not regulate self-insurance for motor vehicles. The Department of Motor Vehicles regulates owners of more than 25 motor vehicles who are able to self-insure under Transportation Code, § 601.124. Contact firstname.lastname@example.org.