Instructions for Completing the SORM-201
Chapter 412.051 of the Labor Code, titled “Duties of State Agencies; Insurance Reporting Requirements”, requires state agencies to report intended insurance purchases to SORM, not later than 30 days prior to the scheduled date of purchase. To comply with this statute, SORM adopted TAC rule 252.307 which requires client agencies to complete and submit form SORM-201 prior to purchasing insurance or bonds.
The SORM-201 is a multi-function form, so some areas are more appropriate than others for certain requests. The first section of the form identifies “what” a client state agency is requesting. Each option specifies the number of days prior to purchase the form is needed and what sections of the form should be completed.
Section A, titled General Information, gathers information about the agency. The contact person’s phone number, fax number, and E-mail address are needed. In addition, the type of insurance/bond and the reason for the purchase are also required. The reason for purchase is very important in this section and usually falls into one of three categories: (1) statutory/regulatory requirement; (2) contractual requirement; or (3) unusual or unique risk/hazard/exposure. If the request is due to the first or second category, the agency must provide reference to, and a copy of, the statutory/regulatory document or contract. If the request is due to the third category, then it is vital for the agency to fully explain the need to purchase by thoroughly completing Section B of this form.
Section B, titled Purpose and Intent, asks “why” the agency is purchasing the insurance or bond. The purpose of this section is to collect details about exposures and perils unique to the agency’s operations.
Exposures are situations, practices, or conditions that might lead to a loss, and may be controllable or uncontrollable, i.e. leasing or owning real property, custody or ownership of business personal property/inventory, servicing clients, operating automobiles, handling money, employing workers, product liability/performance, etc.
Perils are simply the specific cause(s) of loss, i.e. fire, lightning, flood, tornado, theft, burglary, automobile accident, machinery breakdown, terrorism, etc.
The likelihood of a loss occurring refers to the chances of a loss happening. When answering this question, factors such as location, internal controls/loss prevention measures, and nature of the business should be taken in consideration. For example, the occurrence of an earthquake happening in Texas is almost nil while this same peril in California might be definite due to the location. The likelihood of a theft or misappropriation of money by an employee of a bank might be higher than that of an employee of a public school due to the nature of business. On the other hand, due to the internal controls and loss prevention procedures at the bank, the chance of loss might be lower than that of the school.
Maximum Probable Loss is generally defined as the value of loss, assuming the risk management controls are in place and working. The maximum probable loss is usually less than the maximum possible loss.
Maximum Possible Loss is generally defined as the largest amount of loss, assuming the risk management controls fail.
For example, you own a building with a total insurable value of $1,800,000. You have installed a sprinkler system, created fire walls to compartmentalize the spread of fire, and the building is monitored around the clock by on-site security staff. The maximum possible loss if all risk management controls fail is the total $1,800,000 total insurable value. If the event only results in partial loss to the building due to the risk management measures in place, then the expected maximum probable loss is expected to be less than the total insurable value of the building.
How will this policy protect these exposures helps to ensure the policy or bond will provide the necessary coverage for the exposures and perils identified. Not only should the direct loss be considered, but also indirect aspects of the loss such as defense costs and continuing operations while repairs are being completed.
Section C, titled Previous Coverage, SORM will request agencies to provide a copy of the previous year’s policy, along with SORM-201.
Section D, titled Loss Prevention/ Controls, inquires about loss prevention measures and controls the agency has in place to prevent or reduce losses from occurring. A bond or insurance policy cannot stop a loss from happening; it only assists in financially replacing or paying for damages. Overall, it is better to avoid the damage in the first place through loss prevention and internal controls.
Section E, titled Procurement, is simply a question as to how the agency intends to procure the bond or insurance.
Section F, titled Miscellaneous, should be answered depending on what was selected in the first selection.
The bottom section is designated for SORM’s use. After reviewing the information provided, SORM will determine if the insurance/bond is necessary to protect the interest of the state or is economically advantageous to the state. Upon determination, the SORM-201 will be returned to the designated contact person in Section A with the appropriate box marked, comments if applicable, and a decision date.
- SORM-201 (PDF, WORD)
- SORM-202 (PDF)
- Reason for Purchase (a copy of the statutory/regulatory document or the contract)
- Quote/Proposal for purchase
- Losses-submit company loss runs or if not currently insured, internal loss data (last five years)
- What risk control programs are in place to prevent or reduce losses? Submit a copy.
After completion, the form and all required documentation should be sent to SORM’s Insurance Services by E-mail, interoffice mail, fax, or post.
If you have any questions, please contact Insurance Services.