Self-Insured In Texas: Steps To Take For Financial Freedom

In Texas, self-insurance is an option for individuals and businesses alike. For individuals, self-insurance options are available for auto insurance and health insurance. For businesses, self-insurance is an option for workers' compensation, auto insurance, and general liability insurance. To become self-insured in Texas, individuals and businesses must meet certain requirements, such as financial thresholds and the ability to pay for any damages or injuries they may cause. While self-insurance can provide flexibility and cost savings, it is important to carefully consider the risks and ensure that one has the financial means to cover any potential liabilities.

Self-insurance for workers' compensation

In Texas, self-insurance for workers' compensation allows employers to pay their own workers' compensation losses instead of buying an insurance policy. This option is available to private employers that qualify and have operations in Texas.

To become a certified self-insurer (CSI) for workers' compensation in Texas, a private employer must meet the following requirements:

• Have a minimum estimated unmodified manual insurance premium for workers' compensation of $500,000 in Texas or $10,000,000 nationwide.
• Present audited financial statements.
• Have a qualifying financial rating from one of the following:

• Dun & Bradstreet (minimum rating of 3A1)
• Standard & Poor's (minimum rating of BBB)
• Moody's (minimum rating of Baa)
• Alternatively, achieve a qualifying tangible net worth to long-term debt ratio of 1.5 to 1 or greater, with a minimum tangible net worth of $5 million.

• Post a security deposit of at least $300,000.
• Obtain excess insurance coverage of at least $5 million per occurrence.
• Pay a non-refundable $1,000 application fee.

Once the application is submitted, it will be reviewed by the Self-Insurance Regulation (SIR) section of the Texas Department of Insurance, Division of Workers' Compensation (DWC). If the company meets all the statutory and regulatory requirements, SIR will present the application to the Texas Certified Self-Insurer Guaranty Association (TCSIGA) board of directors for approval. With TCSIGA's approval, the commissioner of workers' compensation can issue a certificate of authority to self-insure. This certificate is valid for one year, after which an annual renewal report must be completed.

It is important to note that workers' compensation coverage is not mandatory in Texas, and employers who choose not to purchase insurance are referred to as non-subscribers in the workers' compensation system. However, providing workers' compensation offers legal protection to employers, as they cannot be sued by injured employees unless the injury was caused by the employer's negligence.

Self-insurance for auto insurance

In Texas, self-insurance for auto insurance is only allowed for companies that own and have registered a fleet of 26 or more vehicles. In this case, the company can apply for a certificate of self-insurance to insure all its vehicles instead of purchasing a commercial auto policy.

To obtain a certificate of self-insurance in Texas, the company must provide an audited financial statement demonstrating monthly net assets of over $255,000. Other requirements include providing a history of past claims and claims procedures, as well as agreeing to pay up to $85,000 per accident. Certificates of self-insurance must be renewed every three years to remain valid.

It is important to note that self-insured car insurance for personal vehicles is only allowed in 11 states, and Texas is not one of them. If you are an individual looking to self-insure your vehicle in Texas, you may need to explore other options such as traditional car insurance.

Deposit of cash/security with the comptroller

To become self-insured for workers' compensation in Texas, private employers must apply for a certificate of authority to self-insure workers' compensation. This is also known as becoming a certified self-insurer (CSI).

One of the requirements to become a CSI is to post a security deposit of at least $300,000. This can be done in the form of a letter of credit, a surety bond, or cash.

If you choose to post a security deposit in cash, here's what you need to know:

The cash must be in US currency and sent to the Self-Insurance Regulation (SIR) section of the Texas Department of Insurance, Division of Workers' Compensation (DWC). You will also need to submit a completed application packet, which you can request by calling 512-804-4775 or emailing [email protected]. The application fee of $1,000 is non-refundable.

Once your application is complete, an account manager will be assigned to you and will be your primary contact with SIR. They will review your application and may contact you if they require additional information.

The SIR safety officer will also get in touch to schedule an on-site safety program inspection. After the review is done, SIR staff will prepare a report on your company, including financial, claims, and safety information.

If your company meets all the statutory and regulatory requirements, SIR will present the report to the Texas Certified Self-Insurer Guaranty Association's (TCSIGA) board of directors. They will vote on whether to recommend your application for approval and membership in TCSIGA.

With TCSIGA's approval, 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 this certificate becomes effective, including the security deposit.

As a CSI, you will be billed for taxes and fees, and you will need to maintain your security deposit and comply with ongoing regulatory activities, such as annual renewal reports, on-site safety inspections, and actuarial reports.

Surety bond

A surety bond is a legally binding agreement between three parties. The first party is the principal, who is the person, business, or entity that needs to perform an action or adhere to specific laws. The second party is the obligee, who is the person, business, or entity that requires proof that the principal will follow through with the agreed-upon action. The third party is the surety company, which offers financial protection to the obligee should the principal fail to deliver on their commitments.

In Texas, surety bonds are often required to obtain a business license or permit. They serve as a financial guarantee that specific obligations will be fulfilled according to the agreed-upon terms. These bonds protect consumers and government entities from financial loss due to malpractice. The cost of a surety bond in Texas typically ranges from 1% to 10% of the bond amount, with low-risk bonds priced at a standard premium and high-risk bonds requiring underwriting to determine the cost.

There are several types of surety bonds available in Texas:

• Contract bonds (or bid bonds): These are used in construction projects and guarantee that a contractor will perform the work as per the agreed-upon terms and amount.
• Commercial bonds (or license and permit bonds): These ensure that a contractor's work meets the legally required standards of the state or local area.
• Fidelity bonds: This type of bond provides coverage in the event of employee theft from an employer.
• Public official bonds: These bonds guarantee that a publicly elected official will act within the law. If they engage in unlawful activities resulting in financial loss, the bond covers the damages.
• Judicial bonds: Judicial bonds guarantee that a party involved in a lawsuit will abide by the judge's final ruling.
• Fiduciary bonds: These bonds ensure that individuals acting on behalf of another person in a legal setting, such as a guardian or conservator, do not mismanage the assets of the person they represent.
• Miscellaneous bonds: Due to the complex legal nature of certain industries, there are various "miscellaneous" bonds, such as those for importer/exporters, which protect against losses due to illegal actions.

In the context of self-insurance in Texas, the Texas Department of Insurance (TDI) requires private employers seeking to become Certified Self Insurers (CSI) of their workers' compensation policies to file a surety bond. This bond serves as a guarantee that the employer will comply with CSI rules and regulations and provide the necessary workers' compensation benefits to their employees. The bond amount is determined by the Division of Workers' Compensation and must be either $300,000 or 125% of the employer's incurred liabilities for compensation, whichever is greater.

Certificate of self-insurance

In Texas, a certificate of self-insurance is a legal alternative to auto insurance, but it is only available to companies that own and have registered 26 or more cars. The process involves applying for a certificate of authority to self-insure and meeting specific requirements set by the state. Here is a detailed guide on the certificate of self-insurance in Texas:

Eligibility

To be eligible for a certificate of authority to self-insure in Texas, companies typically need to meet specific financial criteria. The exact requirements may vary, but generally, companies must demonstrate strong financial health and liquidity. This includes presenting audited financial statements and meeting specific financial ratios or ratings. For instance, a common requirement is to have a minimum tangible net worth of $5 million.

Application Process

To initiate the process, companies can obtain an application packet by contacting the Self-Insurance Regulation (SIR) section of the Texas Department of Insurance, Division of Workers' Compensation (DWC). The application process involves submitting the completed application form, along with supporting documentation, and paying a non-refundable application fee, typically $1,000.

Submission Requirements

Once the application is submitted, the SIR staff will review it and may request additional information if needed. As part of the process, the SIR safety officer will schedule an on-site safety program inspection. The review will cover financial, claims, and safety information about the company.

Approval Process

If the company meets all the statutory and regulatory requirements, the SIR will present a report to the Texas Certified Self-Insurer Guaranty Association's (TCSIGA) board of directors. They hold open meetings on a quarterly basis to consider applications. With TCSIGA's approval, the commissioner of workers' compensation can then approve and issue the certificate of authority to self-insure.

Ongoing Requirements

Even after obtaining the certificate of authority to self-insure, there are ongoing requirements that companies need to fulfill. These include maintaining adequate security deposits, undergoing periodic safety inspections, submitting annual renewal reports, and paying taxes and fees associated with the self-insurance program.

Withdrawal and Revocation

Companies that wish to withdraw from self-insurance must notify the SIR in advance and demonstrate that they have established a program to pay all losses, including unreported losses, from accidents or occupational diseases during their period as a self-insurer. The commissioner of workers' compensation has the authority to revoke the certificate of authority to self-insure if the company fails to comply with the established requirements or conditions.

Frequently asked questions