Self-Insured Workers' Compensation Bonds

Employers that self-insure their workers' compensation obligations take on a serious promise: to pay their injured workers' claims directly, rather than through a traditional insurance carrier. Before a state will approve that arrangement, it almost always requires a surety bond as a financial guarantee that those claims will be paid. If you are applying to become a self-insured employer, or renewing your self-insured status, the self-insured workers' compensation bond is one of the requirements standing between you and approval. We have been writing surety bonds since 1971, including financial guarantee bonds like this one.

 

If you already know your state and the bond amount it requires, call us at 800-333-7800 or request a free quote online. Because these are financially underwritten bonds, getting your file in front of us early is the best way to move quickly.

 

What is a self-insured workers' compensation bond?

A self-insured workers' compensation bond is a financial guarantee surety bond that guarantees a self-insured employer will provide the workers' compensation benefits its employees are owed under state law. Instead of buying a workers' comp insurance policy, an approved self-insured employer pays claims out of its own funds. The bond protects employees and the state if the employer cannot or does not pay.

 

As with any surety bond, three parties are involved. The self-insured employer is the principal. The state agency that regulates workers' compensation is the obligee. The surety is the company that guarantees the obligation. If the employer fails to pay valid workers' compensation claims, a claim can be made against the bond, and the surety will pay up to the bond amount. The employer is then required to repay the surety. Because the bond stands behind real, ongoing injury claims, it is underwritten carefully, which we explain below.

 

Who needs this bond?

You need a self-insured workers' compensation bond if your business has applied to, or been approved to, self-insure its workers' compensation obligations with your state. This typically includes:

• Larger employers with the financial strength to pay their own claims and a desire to control their workers' comp costs.
• Self-insured groups, where several employers pool together to self-insure, often through a group administrator or service company.
• Employers renewing their self-insured certification, since the bond is generally an ongoing requirement, not a one-time filing.

Self-insurance can save a financially strong employer significant money over time, but the state's first concern is making sure injured workers are protected. The bond is how the state gets that assurance without holding your cash.

 

How much is a self-insured workers' compensation bond?

The bond amount is set by your state's workers' compensation authority, and it varies considerably from state to state. Most states tie the amount to your expected claims liability, your self-insured retention, payroll, or a formula the regulator applies. Because it is meant to cover real injury claims, the required amount is often substantial, frequently in the six- or seven-figure range for a sizable employer.

 

You do not pay the bond amount itself. You pay an annual premium that is a fraction of it, determined by underwriting. Since this is a financial guarantee bond, the premium and terms depend heavily on your company's financial strength. Rather than estimate a figure, call us at 800-333-7800 with your state and required amount, and we will give you a real quote.

 

Underwriting: what to expect

This is not an instant-issue license bond. A self-insured workers' compensation bond is underwritten as a financial guarantee, because the surety is backstopping your ability to pay claims that may continue for years. To secure approval at strong terms, expect underwriters to review:

• Strong company financials. Audited or reviewed financial statements, healthy net worth, and solid liquidity are typically expected, scaled to the size of the bond.
• Excellent credit. Both the business and its principal owners should present strong credit. This is a financial guarantee, so creditworthiness carries real weight.
• A handle on your claims exposure. Underwriters want to see that you understand and can fund your expected claims, often supported by an actuarial estimate of your liabilities.
• Excess insurance. Many self-insured employers carry excess or stop-loss workers' comp coverage, which limits catastrophic exposure and strengthens the bond file.
• Collateral, when required. For larger bonds or less-established balance sheets, an underwriter may require collateral or an Irrevocable Letter of Credit. We will tell you early if that is likely in your case.

The strongest applicants, financially sound employers with good credit and a clear grasp of their exposure, are the best fit for this bond, and we will work to place them on the best available terms.

 

How to get your self-insured workers' compensation bond

Tell us your state and the bond amount the regulator has set. We send a short application and request the financial documentation underwriters will need, such as recent financial statements and, where applicable, your actuarial report and excess insurance details. We then place your file with a surety market that writes this class and present you with terms. Once you accept and pay the premium, we issue the bond so you can file it with the state and complete or maintain your self-insured certification.

 

Frequently asked questions

Why does the state require a bond to self-insure workers' comp?

Because the state's priority is making sure injured workers get paid. When an employer self-insures instead of buying a policy, the bond guarantees those claims will be covered even if the employer cannot pay, without the state holding your cash.

How is the bond amount determined?

Your state's workers' compensation authority sets it, usually based on your expected claims liability, self-insured retention, payroll, or a regulatory formula. It is often large because it has to cover real injury claims. The surety does not set this number.

How much does the bond cost?

You pay an annual premium that is a fraction of the bond amount, set by underwriting. Because this is a financial guarantee bond, the premium depends heavily on your company's financial strength. Call 800-333-7800 for a quote based on your situation.

What will underwriters want to see?

Typically strong company financials, good business and personal credit, an understanding of your claims exposure (often an actuarial estimate), and any excess insurance you carry. Larger bonds may require collateral or a letter of credit.

Do self-insured groups need this bond too?

Yes. Self-insured groups, where multiple employers pool to self-insure, generally require a bond as well, often through the group's administrator or service company. We write those bonds in addition to single-employer self-insured bonds.

 

Get your self-insured workers' compensation bond

Self-insuring your workers' compensation can be a smart financial move, and the bond should not be the obstacle. Surety Bond Authority has placed financial guarantee bonds for more than 50 years, and we work with the surety markets that understand self-insurance. Call us at 800-333-7800 or contact us today, and we will get to work on your file.