Workers' compensation insurance can seem unnecessary for many successful employers. However, having financial support from a trusted insurance company can help ensure you continue to operate smoothly for many years to come. Even if you choose to self-insure, it's typically not recommended to skip this coverage.
A local independent insurance agent is the best resource when self-insuring with workers' compensation. They'll ensure you get set up with all the coverage you need. But first, here's a guide to self-insured workers' compensation in 2026, including how it works, how to qualify for coverage, and more.
Key Takeaways - Self-Insured Workers' Comp for Employers
In most states, businesses with employees are required to have some form of workers' compensation insurance, with limited exceptions.
Qualifying large, financially sound businesses can choose to self-insure with workers' compensation rather than buying a policy from a carrier.
Self-insuring with workers' comp carries a much greater financial risk, since your business has no legal protection against lawsuits filed by affected employees or their families.
Working with a local independent insurance agent is strongly recommended, as they can help your business weigh its options and determine if self-insuring with workers' comp is a good choice.
What Is Workers' Compensation Insurance?
Workers' compensation insurance is a policy taken out by the employer that pays for medical expenses and partial wage replacement for employees or included owners if they are injured or ill as a result of work tasks or their working environment. This coverage can pay for the following:
- Medical expenses for bodily injuries resulting from job tasks or the work environment
- Mental illness healthcare expenses resulting from problematic or extremely stressful working conditions
- Physical illness medical expenses resulting from unsafe working conditions or job duties
- Partial wage replacements for time out of work to recover from the injury or illness
- Job rehabilitation costs when the employee returns to work
A local independent insurance agent can further explain what's covered by workers' compensation.
What Is Self-Insured Workers' Compensation?
Self-insured workers' compensation is when you, as the employer, decide that you don't want to obtain private or state insurance coverage and instead decide to self-fund. This means that you are responsible for any medical bills, lost employee wages, and related expenses due to covered causes. Essentially, employer self-insurance workers' comp means the employer self-funds its workers' comp obligations rather than buying a policy from a carrier.
Some larger corporations and subsidiaries establish their own bank of funds to use in the event of an employee injury or illness arising from work. A self-insured workers' compensation policy is used because some employers prefer not to pay premiums up front to an insurance company, and instead just pay for the claim amount out of pocket as the need arises.
This can be a pretty risky move to make for employers. Workers' compensation claims can last the lifetime of the employee or claimant if disability kicks in. That means you would be responsible for wages and medical expenses for an unforeseen period, likely decades.
As such, workers' comp self-insurance can end up being much more expensive than purchasing a traditional policy from a carrier and paying monthly premiums regardless of whether you ever file a claim.
How Does Self-Insurance for a Company Work?
Self-insurance means the employer is responsible for covering all workers' compensation claims out of their own funds rather than paying a premium to an insurer. The employer essentially assumes all financial risk for offering workers' compensation benefits to employees.
The various expenses self-insured employers can be responsible for include medical expenses, lost wages, lawsuits, and more. A business must pay all these costs out of its own pocket rather than paying a fixed premium to an insurance company in exchange for coverage.
Who Qualifies to Self-Insure Workers' Compensation?
Typically, large, financially stable employers are qualified for self-insured workers' comp. Self-insured workers' comp requirements typically include the following:
- Three or more years in business
- Minimum net worth of $5 million or more (in Texas and California)
- Minimum premium volume of $500,000 (in Texas)
- Clean compliance record
Each subsidiary files separately with self-insured workers' comp. Self-insurance workers' comp is not available for self-employed individuals, contrary to common confusion.
How to Become Self-Insured for Workers' Compensation
When looking into how to become self-insured for workers' comp, you'll need to follow the legal and procedural requirements. Workers' comp self-insurance approval process requirements can include meeting state regulations and setting aside financial reserves to cover potential costs related to injured workers and related incidents.
Make sure to review your specific state's guidelines for becoming self-insured before beginning the workers' comp self-insurance approval process. You might be required to complete an application and provide other relevant information, such as prior workers' compensation claims and audited financial statements.
Your business will be approved or denied by your state to become self-insured based on its compliance with reporting requirements, such as providing any actuarial annual reports requested, and other factors. Each business entity will be required to file its own application to self-insure with workers' comp. Any divisions or subsidiaries of your business won't be automatically covered just because your self-insurance application is approved.
Self-insured businesses must agree to comply with all Workers' Compensation Board Laws, Rules, and Regulations. They must also pay the Board a security deposit upon application. These security deposits can be made in the form of a surety bond or cash. If a self-insured business fails to pay out workers' comp, disability, or paid family leave benefits to its employees, the security deposit will be used as compensation.
State application and approval process
To begin the workers' comp self-insurance application process, first, you'll need to apply to the state workers' comp regulatory body. California's process takes about 21 days from completing the application to receiving a certificate of authority.
Businesses are evaluated for eligibility based on their financial strength, safety programs, and benefit delivery system. Multi-state employers must file separately in each state where they operate.
Financial requirements and security deposits
These requirements vary by state. For example, California requires businesses to provide three years of audited financial records and have an acceptable credit rating. Texas requires businesses to have a minimum of $5M in tangible net worth or a 1.5:1 net worth-to-debt ratio, a $300,000 minimum security deposit, and $5M in excess insurance.
New York requires businesses to have a net worth that exceeds 7x their average annual claims or annual premium and a minimum security deposit of $1,907,000. Security deposits are posted as surety bonds or cash. You can ask a local independent insurance agent for more information about your state's self-insured workers' comp financial requirements and minimum security deposits.
Costs and Trade-Offs: Self-Insurance vs. Traditional Workers' Compensation
The costs of a self-insured plan vs. a workers' compensation insurance policy can be astronomically different. There is no real way of knowing the price difference because each workers' compensation premium is different and each self-insured claim amount varies. You can get an estimate using a workers' comp insurance calculator, but workers' comp costs can be hard to predict without a quote.
What can be determined are the up-front premiums you would pay on a workers' compensation policy that are set for the annual policy term. Weigh the potential savings of self-insuring with workers' comp for employers with strong safety records, since there will be no insurer profit margin from paying premiums.
It's also critical to consider the cash flow advantages of self-insuring vs. paying fixed annual premiums. With self-insuring, there's an unpredictable and potentially catastrophic loss exposure, since a self-insured claim that you would have to pay could be any amount, and the out-of-pocket expenses could go on for years unless you have a really good lawyer who could make a deal with the claimant.
Self-insuring also comes with a risk of higher admin overhead, including third-party administrator (TPA) fees, actuarial reports, and state filings. So, the real question is, are you willing to take the chance of self-insuring?
Discussing the pros and cons of having a self-insured plan vs. a workers' compensation policy with your independent insurance agent is strongly recommended for all businesses considering self-insuring.
What Is the Role of a Third-Party Administrator in Self-Insurance?
TPAs administer claims on behalf of self-insured employers. They evaluate claims, manage medical payments for affected employees, and handle the business's regulatory filings. California requires new self-insurers to use a licensed TPA for their first three years.
Texas requires a signed qualified claims servicing contractor agreement at the time of certification. TPAs assume no underwriting risk and are paid a fee for their services.
What Is Group Workers' Compensation Self-Insurance?
Non-affiliated employees in the same industry pool their resources to share workers' compensation risk. Group workers' comp self-insurance is available in most states as of 2026. At the beginning of this year, California had 23 private group self-insurers that served 1,832 members.
Smaller employers who cannot qualify individually for self-insured workers' comp may qualify for this kind of coverage through a group program. Ask a local independent insurance agent for more information about group self-insurance workers' comp. They can also explain more about how to join a group workers' comp self-insurance pool.
Protecting Your Program: Excess and Stop-Loss Coverage
Excess (stop-loss) insurance reimburses the employer for claims above their retention level, which caps their catastrophic exposure. Stop-loss workers' comp self-insurance requirements vary by state.
Texas requires a minimum of $5 million in coverage per occurrence at the time of certification. New York requires a Certificate of Excess Insurance (Form SI-21) to be filed at the time of application and renewed annually. Independent insurance agents can help your business get equipped with the right excess insurance for self-insured workers' comp.
Claims Process for a Self-Insured Workers' Compensation Plan
The self-insured workers' comp claims process is commonly broken down into the following steps:
- Your employee, partner, or executive reports their injury or illness.
- The employer or TPA opens an investigation.
- The employer pays out of pocket for all the employee's medical expenses.
- The employer continues paying a portion of the employee's wages during their recovery.
- If the employee is unable to return to work due to a disability, they can sue you. The employer is responsible for long-term wage replacement if the disability is permanent.
- If you're sued, you have no carrier defense as the employer.
If the employee dies, their family or friends could sue you. In fact, anyone at any time could sue you, and you'd have zero protection from a workers' compensation policy or an employers' liability policy.
This is a major case against self-insured workers' compensation, as one of the main benefits of traditional workers' comp policies is the financial protection they offer businesses. Your independent insurance agent can better explain how employers' liability compares to workers' comp.
Claims Process for a Workers' Compensation Insurance Policy
The claims process for a workers' compensation insurance policy through your independent insurance agent is also quite simple:
- Step one: Call your independent insurance agent when you need to file a workers' compensation claim due to an injured or ill employee, owner, executive, or partner.
- Step two: An assigned insurance adjuster calls, gathers the facts, and reports back to the insurance company for processing and final payout determination.
- Step three: The insurance company issues your business a check for all covered claims.
A major benefit of a workers' compensation insurance policy is that the carrier handles the claims and adjuster assignment for you. You can also file a claim directly through your independent insurance agent if you have a workers' comp policy.
Ongoing Obligations: Annual Reporting for Self-Insured Employers
It's critical for self-insured businesses to meet ongoing self-insured workers' comp annual reporting requirements as dictated by their state. Annual filings are required, as well as certified audited financial statements, actuarial reports, and payroll reports for all operations.
Excess coverage certificates must also be presented at each policy renewal. In New York, failure to meet your state's reporting, security deposit, or workers' comp self-insurance compliance requirements may result in termination of your business's self-insured status.
FAQs About Self-Insured Workers' Compensation
What is a self-insured workers' compensation plan?
Self-insuring with workers' comp refers to when an employer self-funds its workers' comp obligations rather than purchasing a policy from a carrier. This is not the same as a self-employed individual or freelancer buying their own coverage.
Which employers typically qualify to self-insure workers' compensation?
Large, financially stable employers with significant premium volume often qualify for self-insured workers' comp. Most states require 3+ years in business, a minimum net worth of $2.5M to $5M+, and a clean compliance record. Most small businesses cannot qualify individually.
What financial requirements must an employer meet to self-insure?
Financial requirements for self-insured workers' comp are highly state-specific. Common requirements include three years of audited financials, a minimum net worth, a posted security deposit (surety bond or cash), and proof of excess insurance coverage.
What is a third-party administrator in workers' comp self-insurance?
A TPA is a licensed company that administers claims on behalf of the self-insured employer, and handles medical payments, legal filings, and regulatory reporting for a fee. The TPA assumes no underwriting risk. California mandates businesses to use a TPA for the first three years of self-insurance.
What is group workers' compensation self-insurance?
Group workers' comp self insurance is an arrangement in which non-affiliated employers in the same industry pool their resources to collectively self-insure their workers' comp obligations. This strategy allows smaller employers to participate in programs they could not qualify for individually.
What is excess or stop-loss insurance for self-insured employers?
This is insurance that reimburses the employer for individual claims above a set retention limit, protecting against catastrophic losses. Texas requires a minimum of $5M per occurrence at the time of certification.
How does an employer apply to become self-insured for workers' comp?
The employer must apply to the state workers' comp regulatory body, then provide three years of audited financials, proof of current coverage, and complete a safety program. Next, they must post a security deposit. The process takes approximately 21 days in California. Each entity, including subsidiaries, must file separately.
Is self-insuring workers' compensation right for my business?
Self-insuring with workers' comp is generally appropriate for large employers with strong safety records and adequate reserves. Independent insurance agents can evaluate your business's risk tolerance, state-specific requirements, and whether a TPA partnership makes operational sense for your organization.
The Benefits of an Independent Insurance Agent
When it comes to your business's workers' compensation coverage, it's helpful to work with a local independent insurance agent. These agents can help employers evaluate whether self-insurance fits their risk profile, navigate state application requirements, and find excess coverage.
They can also help you find a traditional workers' comp policy by shopping and comparing quotes and coverage options from multiple carriers near you. And down the road, your agent can help you file workers' comp claims and update your coverage when necessary.
Sources
https://www.wcb.ny.gov/content/main/SelfInsureds/selfins_wc.jsp
https://www.tdi.texas.gov/financial/si/index.html
https://www.marsh.com/en/services/workers-compensation/insights/self-insurance-vs-insured-workers-comp-programs.html
https://www.dir.ca.gov/osip/apprequirements.htm