Self Insurance Regulation

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					Self Insurance Regulation
   •   What is Self Insurance?
   •   Who May Apply?
   •   Primary Qualifications
   •   Request an Application Packet
   •   Application and Approval Process
   •   Program Fees and Taxes
   •   Listing of Certified Self-Insurers
   •   Texas Certified Self Insurer Guaranty Association
   •   Public Entity Self-Insured
   •   Contact

What is Self-Insurance?

Texas offers a program of Certified Self-Insurance for large private employers that have operations in
Texas.

Self-Insurance is the formal process of applying to the state for a Certificate of Authority, being
approved, and directly paying the company’s own workers’ compensation losses.

Approval as a Certified Self-Insurer affords the applicant company protection under the Texas
Workers’ Compensation Act.

Since workers’ compensation coverage is not mandatory in Texas some smaller companies that are
non-subscribers to the Texas Workers’ Compensation Act use the term of self-insurance to describe
their workers’ compensation coverage status under the Act.

Unless a company holds a Certificate of Authority as a Certified Self-Insurer, a company is
considered a non-subscriber to the act even though they may call themselves self-insured.

Who May Apply?

Self-Insurance is available to qualifying private employers 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 by virtue of Sections 501-504 of the Texas Labor
Code. There is no self-insurance application and approval process for these entities to self-insure.
Self-Insurance Regulation does not regulate these public self-insured entities or their self-insured
groups.

Primary Qualifications

Some of the key requirements to become a Certified Self-Insurer in Texas are as follows:

   •   A private employer with operations in Texas.
   •   An Estimated Manual Insurance Premium of at least $500,000.
   •   Presentation of Audited Financial Statements.
   •   Qualifying Credit/Debt ratings as follows:
Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC)
Self-Insurance Regulation
           o   Dun & Bradstreet – 3A1 or better or
           o   Standard & Poor’s – BBB or better or
           o   Moody’s Investor Services Baa or better or
   •   A qualifying Tangible Net Worth ratio of 1.5 to 1, with minimum Tangible Net Worth of $5
       million.
   •   Posting of a minimum security deposit of $300,000.
   •   Posting of excess insurance in the amount of $5 million per occurrence.
   •   Submission of an Application to Self-Insure Form to Self-Insurance Regulation.
   •   Payment of a $1,000 application fee.

Once Self-Insurance Regulation has completed processing an application or renewal, the Director of
Self-Insurance Regulation makes a recommendation for certification to the Texas Certified Self-
Insurers Guaranty Association. The Guaranty Association Board and the Texas Department of
Insurance, Division of Workers' Compensation Commissioner, approve any company as a Certified
Self-Insurer in their respective public meetings.

Request an Application Packet

To request an application packet mailed:



Call   512-804-4775      and    leave    your   name, company   name   and  address  or
send an email to selfinsurance@tdi.state.tx.us with your name, company name and address
requesting the application packet to be mailed.

Self-Insurance Regulation’s normal office hours are 8:00 a.m. to 5:00 p.m. Central time, Monday
through Friday.

Application & Approval Process

   •   Self-Insurance Regulation processes your application
   •   Your application is presented for approval
   •   Certification processing after approval
   •   Certification
   •   Ongoing Regulatory Activities
   •   Withdrawal From Self-Insurance

What Happens After Self-Insurance Regulation (SIR) Receives Your Application?

SIR processes your application

1. Within a few days after receipt of your application, SIR will acknowledge receipt of your application
and provide you with the name of your individual Account Manager. The Account Manager will be
responsible for your company's application processing in SIR and will serve as your primary contact
with our office on an ongoing basis.

2. The Account Manager, in conjunction with our claims and safety staff, will review your application
for completeness and contact you if additional information is needed. Assuming a complete

Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC)
Self-Insurance Regulation
application, our Safety Programs Manager will contact you directly in order to arrange on-site safety
program inspections.

3. After the initial review process, the following work on your application will proceed concurrently:

a. Review of Financial and corporate structure information.

b. Review of Claims Related information and calculation of a recommended Security Deposit.

c. Review of Safety Plan and on-site safety program inspections.

(Please refer to the Private Employer Certified Self-Insurance Guide for the specific qualifications in
each of the above three areas.)

4. When the review is complete, an evaluation report is prepared covering general company
information, financial information, claims information, and safety information. Next, SIR determines
whether it can recommend the applicant to the Texas Certified Self-Insurer Guaranty Association and
Texas Department of Insurance, Division of Workers' Compensation for certification as a self-insurer.

If SIR is unable to recommend your application for approval, your company will be notified in advance
and will be given an opportunity to withdraw or modify the application before presentation to the
Texas Certified Self-Insurer's Guaranty Association and the Texas Department of Insurance, Division
of Workers' Compensation.

Your application is presented for approval

5. The evaluation report on the applicant company is presented to the Texas Certified Self-Insurer’s
Guaranty Association and the Texas Department of Insurance, Division of Workers' Compensation.
The Texas Certified Self-Insurer's Guaranty Association votes to recommend or not recommend your
application for approval by the Division and for your company's membership in the Texas Certified
Self-Insurer's Guaranty Association (also commonly known as the Guaranty Association).

Generally, the Guaranty Association meets on a quarterly basis to consider applications. You will be
notified by your Self-Insurance Regulation Account Manager to advise you as to the specific meeting
time and date when your application will be presented. It is recommended that your company have a
representative present at this meeting to answer any questions regarding your application or your
company that might arise in the course of the board's discussion. Any concerns regarding the
meeting schedule of the Guaranty Association should be directed to Judy Roach, Executive Director
of the Texas Certified Self-Insurer's Guaranty Association at (512) 322-0514.

These meetings are public meetings as opposed to hearings, and normally company representatives
will not be able to "present their case", although they may have an opportunity to answer board
member questions or clarify information.

Certification processing after approval

6. Assuming the application is approved by both the Texas Certified Self-Insurer’s Guaranty
Association and the Texas Department of Insurance, Division of Workers' Compensation in their
respective public meetings, your company could wait as long as sixty days before it is "certified." The

Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC)
Self-Insurance Regulation
following items must be filed with Self-Insurance Regulation prior to the effective date of a Certificate
of Authority to Self-Insure:

a. Parental Guaranty - If applicable, completed form(s) will be sent to you for signature.

b. Security Deposit - A security deposit in the amount determined by the Division in the form of a
Letter of Credit, Surety Bond, or cash.

I. Letter of Credit - An Irrevocable Standby Letter of Credit prepared on Form SI-223 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,
the Self-Insurer's Agreement to Post Documentary Irrevocable Standby Letter of Credit prepared on
Form SI-225 must also be submitted. After receipt of signed agreements, we will sign and return one
copy for your records.

II. Surety Bond - A Surety Bond written on Form SI-210 issued by a company authorized to conduct
such business in Texas and has an A.M. Best rating of B+ or better or a Standard & Poor's rating of
claims paying ability of A or better.

III. Cash - U.S. currency.

c. Signed Third-Party Administrators Agreement - One complete copy of the contract for claims
administration. Both the certified self-insured and the approved Third-Party Administrator must
properly execute the contract. If actual financial costs are an addendum, it is not necessary to
provide the financial information.

d. Certificate of Excess Insurance Coverage - A Certificate of excess insurance coverage from the
excess insurance carrier with retention equal to or less than the Security Deposit. The Guaranty
Association must be named as an additional insured in the event a Certified Self-Insurer becomes an
impaired employer.

7. Certification - Upon receipt of the applicable items in 6., the following events transpire:

a. A Certificate of Authority to Self-Insure will be issued for a one-year period.

b. Self-Insurance Regulation will provide a copy of the Certificate and the location list provided with
the application to the Division's Records Division to establish valid coverage on the agency claims
system.

c. The Records Division will assign a unique Carrier Master Business Index number that must be
used when your company, your Third-Party Administrator, or other vendor transmits medical payment
information to the Division.

d. An invoice is submitted to the Certified Self-Insurer for its fees. Please refer to the Private
Employer Certified Self-Insurance Guide for information on fee assessments.

e. Your company becomes a member of the Guaranty Association. You will be contacted directly
concerning requirements and obligations as a member of the Texas Certified Self-Insurer’s Guaranty
Association.

Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC)
Self-Insurance Regulation
Ongoing Regulatory Activities

   •   Annual Renewal Report
   •   Safety Site Inspections
   •   Actuarial Reports
   •   Covered Locations

8. Annual Renewal Report - About eight months before the expiration of your current certificate, your
Annual Renewal Report form will be mailed to you for completion. The long lead time is required in
order for (1) your scheduling convenience, and (2) for Self-Insurance Regulation to review your
application, prepare our evaluation report, and present our report to the Guaranty Association and the
Division prior to the expiration of your current certificate. Self-Insurance Regulation's scheduling of
renewals is maintained to accommodate the quarterly meeting schedule of the Guaranty Association.

Self-Insurance Regulation has combined all of its annual reporting requirements into the Annual
Renewal Report for your convenience. In order to avoid additional requests for information, please
submit complete and accurate information on the renewal report.

9. Subsequent Safety Program On-Site Inspections - Upon initial application, the first renewal, and at
least once every three years thereafter, the Safety section will conduct an on-site safety program
inspection of your Texas operations. Safety program inspections may be conducted at other times,
as necessary. For example, if your company reports incidence rates that are significantly higher than
the Texas and National published rates and/or a change from prior years rates, a safety program
inspection may be scheduled.

10. Actuarial Reports - An actuarial report will be due with the Annual Renewal Report that is filed
after your company has completed three full years of certified self-insurance experience, and every
three years thereafter. Self-Insurance Regulation may require an interim or special actuarial report
should your company have a sudden drop in financial strength or the financial strength approaches
non-qualification levels.

11. Covered Locations - Any additions or deletions to your covered location list should be promptly
provided to your Self-Insurance Regulation Account Manager to insure that any change is covered
under the certificate. A request to add significant subsidiary operations or new subsidiaries may be
subject to an on-site safety program inspection prior to extending coverage under your certificate.
Self-Insurance Regulation also reserves the right to request additional loss information to analyze the
continuing adequacy of the security deposit on file.

Withdrawal From Self-Insurance

   •   Voluntary Withdrawal
   •   Regulation After Withdrawal
   •   Retroactive Withdrawal Ongoing

12. Voluntary Withdrawal - At some point in the future, your company may decide to return to
coverage through an insurance company instead of being certified self-insured or your company may
be involved in some type of corporate reorganization that necessitates withdrawing from the
program. The following events and/or policies govern voluntary withdrawal from the self-insurance
program:

Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC)
Self-Insurance Regulation
The Certified Self-Insurer must submit advance written notice of the intent to withdraw. The notice
should address these items:

   •   The proposed withdrawal date.

   •   A written plan that shows how the claims liabilities will be paid and administered until all
       liabilities are paid.

   •   Location where the claim files will be stored.

   •   Provide notification to Self-Insurance Regulation if the files are relocated, if the Third-Party
       Administrator (TPA) is changed, and/or if the Austin, Travis County Representative has
       changed.

   •   A copy of the signed TPA contract, if different from the TPA that is currently administering the
       claims.

   •   Current loss run listings (details to be determined at withdrawal time).

   •   The company contact person, if different from the current contact person.

After receipt of a notice to withdraw, Self-Insurance Regulation will terminate your Certificate of
Authority to Self-Insure on the requested date.

Self-Insurance Regulation will prepare a report summarizing the claims payout plan you have
outlined. This report will be submitted to the Guaranty Association for review and to the Texas
Department of Insurance, Division of Workers' Compensation for approval.

Once your payout plan has been approved by the Texas Department of Insurance, Division of
Workers' Compensation, a Final Order will be prepared showing that your company withdrew in
satisfactory condition from the program. This order will then be exchanged for any unexpired
Certificate of Authority to Self-Insure that you may hold.

13. Ongoing Regulation After Withdrawal - Self-Insurance Regulation will continue to monitor your
payout plan and any withdrawn Certified Self-Insurer will continue to report on a yearly basis for the
claims it incurred during its period of certification. An actuarial report may be required in future years
after withdrawal; safety program inspections are not conducted after withdrawal. Annual Financial
Statements will continue to be required.

14. Retroactive Withdrawal - Self-Insurance Regulation reserves the right to reject any retroactive
withdrawal requests. Unless advance notification is provided, Self-Insurance Regulation will
terminate coverage effective the day after written notice is received from the Certified Self-Insurer.

Program Fees & Taxes

This section provides a summary of Certified Self-Insurance fees.

Certified Self-Insurers pay the following fees annually upon acceptance to the Self-Insurance program
in Texas.

    • Regulatory Fee
Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC)
Self-Insurance Regulation
   •   Texas Department of Insurance, Division of Workers' Compensation Maintenance Tax
   •   Workers' Compensation Research Maintenance Tax
   •   Texas Certified Self-Insurer Guaranty Association Fees

The sample fees shown in this section are examples based upon Calendar Year 2004 billings.
Interested applicants can use these estimates for planning purposes in evaluating their own particular
cost, if the applicant were to become a Certified Self-Insurer.

Regulatory Fee [Section 407.102]

The regulatory fee covers the administrative costs of Self-Insurance Regulation incurred by the Texas
Department of Insurance, Division of Workers' Compensation in implementing the Self-Insurance
Program in the Texas Workers' Compensation Act (Act). The regulatory fee that is billed at the time
of certification is an estimated amount for the calendar year based upon an estimated annual
administrative cost and an estimated total of all Certified Self Insurers' (CSI) income benefit
payments. A final assessment is made at the beginning of the following calendar year, based upon
the actual total administrative cost of the Self-Insurance Program, as well as the actual total of all
CSIs' income benefit payments, once all companies have reported for the billing year. A
reconciliation of actual fees owed versus actual fees billed in the prior calendar year is then
calculated. Over payments from the prior calendar year, if applicable, appear as credits on the
following calendar year's regulatory fee invoices. Conversely, final bills are generated and sent to all
CSIs when regulatory fees are owed from the prior calendar year.

Self-Insurance Regulation uses the CSI’s income benefit payments made in the preceding calendar
year to calculate each CSI's regulatory fee. For the purposes of continuity and fairness to all CSIs,
the preceding calendar year is translated as the most recent year for which all CSIs are able to report
calendar year end totals. For example, a company certified in 2004 would be invoiced on benefit
payments made in 2002 for claims occurring in 2000, 2001, and 2002. Claims occurring within a
three-year time frame are used in order to stabilize regulatory fee changes between the years due to
fluctuating benefit payments.

The following is an example of how the formula was used to calculate the regulatory fee for the 2004
invoices:




Using the amounts below as an example, a company would owe $2,375 for the regulatory fee.




The regulatory fee is calculated as follows:




Texas Department of Insurance, Division of Workers' Compensation (DWC) Maintenance Tax
[Sections 407.103, 403.002, and 403.003]
Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC)
Self-Insurance Regulation
The Act authorizes the Division to collect a maintenance tax to pay for the Division's cost of
administering the Act. Certified Self-Insurers (CSIs) as well as all Texas workers’ compensation
insurance carriers, other than governmental entities, pay this tax. It covers the operations of the
Division, excluding Self-Insurance Regulation, which is paid directly by the CSIs through the
regulatory fee. This billing is done on an annual basis at the time of certification.

The CSI's Division maintenance tax calculation is based on the individual company's amount of
liabilities for Texas workers' compensation claims that occurred 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 assessed by the Division to insurance carriers, which is subject
to a limit of two percent. For the purposes of continuity and fairness to all CSIs, the previous year is
translated as the most recent year for which all CSIs are able to report calendar year end totals. For
example, companies certified in 2004 were invoiced on liabilities for claims occurring in 2002.

The formula for the Division maintenance tax is:




As an example, a company with a CSI tax base of $1,000,000 and a Division maintenance tax rate of
1.125% would owe $11,250 for the Division maintenance tax. The calculation is as follows:



Workers' Compensation Research Maintenance Tax [Section 404.003]

Certified Self-Insurers (CSI), as well as all Texas workers' compensation insurance carriers, except
government entities, pay this tax. The research functions of the Research and Oversight Council on
Workers' Compensation (ROC) were transferred to the Texas Department of Insurance by Executive
Order of the Governor effective September 1, 2003. In accordance with House Bill 28, 78th
Legislature, 3rd called session, the Texas Department of Insurance (TDI) is authorized to set a
maintenance tax rate to fund the activities related to certain workers' compensation research
functions. Self-Insurance Regulation continues to collect ROC Workers' Compensation Research
maintenance tax on its behalf. This billing is done on an annual basis at the time of certification.

The Workers' Compensation Research maintenance tax is based on the same CSI tax base as the
Texas Department of Insurance, Division of Workers' Compensation maintenance tax. The tax base
is then multiplied by the rate assessed to insurance carriers, which is subject to a limit of one-tenth of
one percent.

As an example, a company with a $1,000,000 CSI tax base (as defined above) and a Workers'
Compensation Research maintenance tax rate of .039% would owe $390 for the Workers'
Compensation Research maintenance tax. The calculation is as follows:




Note: TDI has determined that, as of January 1, 2004, the Workers' Compensation Research
maintenance tax rate will be zero percent (0%). Therefore, Self-Insurance Regulation calendar year

Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC)
Self-Insurance Regulation
2004 invoices reflected the zero percent Workers' Compensation Research maintenance tax rate.
Please check with Self-Insurance Regulation for the most current rate.

Texas Certified Self-Insurer Guaranty Association Fees [Section 407.126]

The Texas Certified Self-Insurer Guaranty Association (Association) is required by the Act to create a
Texas certified self-insurer guaranty trust fund of at least $1 million, not to exceed $2 million, over a
period of ten years beginning January 1, 1993, for the emergency payment of the compensation
liabilities of an impaired certified self-insurer. The Association may also assess a fee to cover the
administrative costs of the Association. The Association bills these fees separately. Inquiries about
the Association’s fees should be directed to Ms. Judy Roach, Executive Director, Texas Certified Self-
Insurer Guaranty Association at (512) 322-0514.

Texas Certified Self-Insurer Guaranty Association

All Certified Self-Insurers in Texas are members of the Texas Certified Self-Insurers Guaranty
Association. The purpose of the Texas Certified Self-Insurer's Guaranty Association is to pay any
outstanding claims that relate to any impaired Certified Self-Insurer.

As a part of the self-insurance application process, all applicant companies are presented for the
approval of the Texas Certified Self-Insurer's Guaranty Association before being submitted for
approval to the Texas Department of Insurance, Division of Workers' Compensation Commissioner.
Since all Certified Self-Insurers have a potential unlimited liability for the outstanding liabilities of any
other Certified Self-Insurer, the Texas Certified Self-Insurer's Guaranty Association must review and
approve all new applicants before certification

For further information in regards to the Texas Certified Self-Insurer's Guaranty Association, please
contact Ms. Judy Roach, Executive Director, at 512-322-0514.

Public Entity Self-Insured

Public entities such as cities, counties, school districts, any state of Texas agency, state college or
university, or other public entity may self-insure by virtue of Sections 501-504 of the Texas Labor
Code.

There is no self-insurance application and approval process for these entities to self-insure.

Self-Insurance Regulation does not regulate these public self-insured entities or their self-insured
groups.

To Contact Self-Insurance Regulation

Telephone 512-804-4775
FAX 512-804-4776
E-mail selfinsurance@tdi.state.tx.us

Self-Insurance Regulation’s normal office hours are 8:00 a.m. to 5:00 p.m. Central time, Monday
through Friday.


Texas Department of Insurance, Division of Workers' Compensation (TDI-DWC)
Self-Insurance Regulation