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Self-insuring workers' comp: requirements and trade-offs

What a state requires before an employer can self-insure workers' comp, what it costs in security and excess cover, and when it beats a policy.

4BusinessInsurance · Published October 10, 2026

Self-insuring workers' compensation means a state agency has certified that your company can pay its own injured workers' claims, so you carry no comp policy. In exchange you post security, buy excess insurance against catastrophic claims, and run (or hire someone to run) the claims. It is a program for large, financially strong employers with predictable losses; the rules differ in every state, and in four states the state fund controls it.

Who regulates it, and where it is not available

Most states that allow individual self-insurance let a qualified private employer apply to the workers' comp agency, the insurance department or the labor department. A few examples show how different the doorways are:

  • Texas certifies private self-insurers through the Texas Department of Insurance. TDI's page lists a tangible net worth of at least $5 million with a tangible net worth to long-term debt ratio of 1.5 to 1 or better (credit-rating alternatives are also listed), a security deposit of at least $300,000, excess insurance of at least $5 million per occurrence and a $1,000 non-refundable application fee. The certificate of authority runs one year and renews annually. (TDI, certified self-insurance.)
  • New York requires tangible net worth above seven times the greater of the three-year average gross claims payments or annual premium, and a security deposit with a $1,999,000 minimum from July 1, 2026 (see Self-insurance and third-party administrators (TPAs) explained).
  • Nevada under NRS 616B.300 asks for tangible net worth of at least $2,500,000, a deposit based on claims history with a $100,000 minimum, and excess insurance.
  • Alabama requires audited financials, $5 million of minimum net worth, a current ratio of at least 1.0 and positive net income (per our Alabama guide).
  • California supervises private self-insurers through the Department of Industrial Relations' Office of Self-Insurance Plans. Under 8 CCR 15210, the security deposit for a private self-insurer is tied to estimated liabilities, can be met with a surety bond, letter of credit, cash, securities or a combination, and can be raised by the Director. Failing to keep the deposit posted for 60 days is grounds for revoking the certificate.
  • New Jersey approves self-insurers through the Department of Banking and Insurance, weighing financial ability and the permanence of the business, and may require security (N.J.S.A. 34:15-77).

The four exclusive-fund states are different. North Dakota, Ohio, Washington and Wyoming do not allow private comp insurers, so an employer there either buys from the state fund or qualifies through the state. Washington employers can self-insure through the Department of Labor and Industries (per L&I's overview). Wyoming's mandatory extra-hazardous coverage has to come from the state fund with no self-insurance option, according to a 2023 Legislative Service Office memo. See Monopolistic state funds: workers' comp in ND, OH, WA and WY.

State thresholds, deposits and fees change, and the numbers above are examples from the agencies' own pages in October 2026. Confirm them with the agency before planning a filing, and use workers' comp and benefits requirements by state for your states.

What a regulator looks at

Whatever the state, an application usually asks for the same evidence:

  1. Financial strength. Audited statements, tangible net worth, working capital, sometimes a credit rating, sometimes a parent guaranty.
  2. Loss history. Several years of loss run data, to see whether losses are stable enough to be funded.
  3. Security. A deposit in a form the state accepts, typically a letter of credit, surety bond or securities, sized to the actuarial estimate of outstanding and future liabilities.
  4. Excess coverage. A specific excess policy that pays above a per-occurrence retention, sometimes with an aggregate layer. Texas, for one, sets a floor of $5 million per occurrence and ties the minimum deposit to the retention.
  5. Claims administration. A named plan for handling claims, either an in-house unit or a third-party administrator. Applications often must name the administrator.
  6. Safety and return-to-work programs. Some states ask for these in writing.
  7. Annual reporting. Many agencies require an annual report and an actuarial update, and renew the certificate each year.

Self-insured, large deductible, guaranteed cost: the real choice

Employers rarely choose between "all insured" and "all self-insured." The middle options are:

Feature Guaranteed-cost policy large deductible program Individual self-insurance
Who pays claims Insurer Insurer pays, you reimburse You pay (or your TPA pays from your funds)
State approval needed No, beyond the carrier's licensing No, program is filed by the carrier Yes, certificate or order from the agency
Collateral None Letter of credit, surety or trust to the carrier Deposit posted with the state
Excess cover Included in the policy Included, above the deductible You buy it separately
Claims control Insurer Insurer, often with your input You or your TPA
Typical fit Most employers Mid-size and large employers Large, financially strong employers

Read the companion guide large deductible workers' comp programs: how they work and what they cost before committing, because a large deductible captures much of the saving with less regulatory exposure and the insurer, not the state, is on the risk if you fail.

What you gain, what you take on

Potential gains. You keep cash that would otherwise go to the insurer's expenses and profit, earn investment income on funds held for later claims, control claim handling and settlement posture, and your cost follows your own safety performance more directly. Some employers also like not paying residual market loading or state fund surcharges in the year-to-year market.

What you take on.

  • Volatility. A bad year of severe injuries hits earnings, and long-tail claims stay open for decades.
  • Security that ties up credit capacity and gets adjusted by the state as claims develop.
  • Compliance work: filing, reporting, audits of claim files, and responding to the agency.
  • Responsibility for benefits: if your TPA mishandles a claim, penalties and bad-faith exposure land on you.
  • Premium-like costs remain. States commonly assess self-insurers to fund guaranty or administrative funds, and you still pay for excess insurance and the TPA.

If a self-insured employer defaults, the state can draw on the security, and in many states a guaranty fund steps in for the remaining unpaid claims. That protects workers, not the employer's reputation or its other creditors.

Self-insurance groups and captives

Not every employer can meet the individual standards. Many states let employers of similar kinds pool through a group self-insurance fund (Maryland and Massachusetts, for example, name self-insurance groups in their statutes), which spread risk and share the security and administration. Another route is a captive insurance company that reinsures a fronting carrier's comp policy, covered in Is a captive right for your business? A feasibility checklist. Both are separate regulatory regimes from individual self-insurance.

Worked example (hypothetical)

Say a regional distributor with 1,200 employees across two states has paid between $2 million and $3 million of comp premium for years, with stable frequency and a good return-to-work program. Its CFO compares three options with the broker. Option one stays on guaranteed cost. Option two is a $500,000 per-claim large deductible with a collateral letter of credit. Option three is full self-insurance in the state where the regulator allows it, with a $750,000 retention under a specific excess policy.

The comparison turns on four numbers: expected annual retained losses with a margin for a bad year, the cost of security, the TPA fee plus excess premium, and assessments. If the expected savings after those costs are small, the large deductible usually wins because it leaves the compliance burden with the insurer. If the savings are large and the company has credit headroom and in-house claims oversight, self-insurance becomes plausible. The numbers here are illustrative only. See Total cost of risk (TCOR) calculator to structure the comparison.

Key takeaways

  • Self-insured comp requires state approval, financial tests, a security deposit and excess insurance, and the specifics change with each state.
  • Texas, for example, lists $5 million of tangible net worth, a $300,000 minimum deposit and $5 million per occurrence of excess cover; other states use different tests.
  • North Dakota, Ohio, Washington and Wyoming run exclusive state funds, and Wyoming's required coverage cannot be self-insured.
  • A large deductible captures much of the benefit with less regulatory burden; compare total cost, not just premium.
  • Plan for long-tail claims, collateral changes and the claims administration work before you leave the insurance market.

Terms used in this guide

Workers' compensation State-mandated no-fault insurance that pays medical care and part of lost wages for work-related injuries, in exchange for limits on employee lawsuits. Third-party administrator (TPA) An outside firm hired to run claims and administration for a self-funded plan, captive or self-insured program without taking on the insurance risk. Retention The share of a loss a business pays itself, through a deductible, self-insured retention or captive, before insurance responds. Large deductible program A policy where the insurer pays claims and then bills you for losses up to a high per-claim deductible, in return for lower premium and secured collateral. Loss run An insurer-issued report listing every claim on a policy over a period, with dates, amounts paid, reserves held and whether each claim is open or closed. Captive insurance company A licensed insurer owned by the business or group it insures, formed to underwrite their own risks rather than buying all coverage from outside insurers.

Related states

Texas Texas business insurance rules: workers' comp optional for most private employers, Texas Mutual as insurer of last resort, 30/60/25 auto, a 51% fault bar. California California business insurance rules: workers' comp from the first employee, employee-paid SDI and paid family leave, pure comparative fault, 30/60/15 auto. Alabama Alabama business insurance rules: workers' comp at five employees (any size for new-home builders), contributory negligence, 25/50/25 auto minimums. New York New York business insurance rules: workers' comp, statutory disability and Paid Family Leave from the first employee, NYSIF, Labor Law 240, 25/50/10 auto. Nevada Nevada business insurance: workers' comp from the first employee, no state fund since 2000, 25/50/20 auto limits and limits on defense-within-limits policies. Washington Washington business insurance rules: monopolistic L&I comp billed by hours worked, stop gap needed, 2026 Paid Leave 1.13%, WA Cares 0.58%, 25/50/10 auto.

Related tools

Workers' comp and benefits requirements by state Look up one state's workers' comp threshold, disability and paid leave programs, auto minimums and regulator, or compare two states side by side. Total cost of risk (TCOR) calculator Adds premiums, retained losses, fees, collateral, risk control and staff time into one annual cost of risk, and compares a current program with a proposed one. Deductible and retention break-even calculator Compares two deductible or retention options by expected annual cost, finds the claim frequency where they cost the same, and shows what a bad year would cost.

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