A license to self insure is available for qualified employers with at least 300 employees and $750,000 in annual standard premium. To be self insured, employers must have enough capital to cover the expenses associated with self insurance (i.e. bond, reinsurance, third party administrator (TPA) and lawyer). The Office of Self Insurance evaluates employers every year to determine their eligibility for self insurance and to establish new bond amounts.
Any business seeking self insurance status must first send in the company's most current annual report (10K), description of the business, and credit rating from at least 2 of the following company's:
- Dun & Bradstreet
- Moody's, or
- Standard & Poors
If a company is granted self insurance status, they will be mailed a self insurance application to complete.
For an employer to qualify to self insure, it must post a surety bond or negotiable securities to cover any losses that may occur. The amount of deposit varies for every company depending on their previous reported losses and predicted future losses. The average bond or security deposit is usually over $ 1 million, and depends on many factors including:
- Loss experience
- Financial state of the company
- Hazard of the occupation
- Manual premium
- Number of years as a self insured company, and
- Attaching point of reinsurance
Employers who are self insured must purchase catastrophe reinsurance of at least $500,000. Smaller self insured companies are required to purchase aggregate excess insurance to cover multiple claims that exceed a set amount. Many self insured employers engage the services of a law firm or a third party administrator (TPA) to handle claims administration. Each self insurance license provides approval for a parent company and its subsidiaries to self insure.
The Commonwealth of Massachusetts does not fall under the category of self insurance, although its situation is analogous to self insured employers. It is not required to have a license to self insure because of its special status as a public employer and it therefore funds workers' compensation claims directly from the treasury as a budgetary expense. The agency responsible for claims management, the Human Resources Division (HRD), has similar responsibilities to an insurer, however, the state does not pay insurance premiums or post bond for its liabilities.