ALBANY, N.Y.—A budget bill the New York Legislature adopted last week includes new regulations for the state's troubled group self-insured workers compensation trust system—a problem observers say affects all self-insureds in the state.

Since 2006, 19 group self-insurance trusts for workers compensation liabilities in the state have closed voluntarily, while another 17 are insolvent. A 2011-2012 state budget document recently estimated their combined deficit at some $800 million, a problem experts say is unique to New York because of the scale of trust failures.

Most of those liabilities stem from trusts once administered by Hamilton, Bermuda-based Compensation Risk Managers L.L.C., several sources said. The firm, which changed its name to Majestic Capital Ltd. last year, could not be reached for comment.

Under the state budget adopted last week by the legislature and supported by Gov. Mario Cuomo, New York's group trusts must essentially “requalify” with regulators to remain in operation, said Charles T. Reller, president of the Group Self-Insurance Assn. of New York Inc. in Albany.

They must post cash or letters of credit with the New York State Workers' Compensation Board by Nov. 1 in an amount equal to their workers comp claims reserves incurred during 2010, Mr. Reller said.

In subsequent years, the trusts would have to “ramp up” the amount of security deposited each year until 2014, when they must have posted an amount equal to claims reserves for all years, Mr. Reller said.

They also must meet other qualifications, such as establishing safety programs. Financially healthy trusts already have such programs in place, Mr. Reller said.

Group trusts typically insure smaller employers that are in the same industry. New York's failed trusts also have adversely affected large, individually self-insured employers and companies that participate in financially healthy group trusts because the NYWCB assesses fees on them to cover workers comp liabilities from the insolvent groups.

“It's a big problem,” said Mr. Reller, who also is president of Syracuse, N.Y.-based trust administrator Reller Risk Management L.L.C. “No one denies that.”

But the budget plan also would allow failed trusts or their members to establish payment plans to pay assessments levied by the NYWCB and they can purchase loss portfolio transfer insurance to eliminate their claims obligations, sources said.

At least one insurer is evaluating whether to provide loss portfolio insurance, which would allow the group trusts to pay for a policy that transfers the trusts' liabilities to an insurer. That insurer is St. Louis-based Safety National Casualty Corp., several sources said.

That would provide a means for financially viable trusts wishing to exit the self-insurance market to do so while allowing failed trusts to transfer their liabilities to the insurer, sources said.

Safety National has approval to sell LPTs in 32 states, said Michael Kim, the insurer's loss portfolio transfer product manager.

LPTs often are purchased by employers looking to stop self-insuring their workers comp risks, which requires them to obtain regulator approval after demonstrating that an insurer will assume their unlimited liabilities.

For New York's trusts, such an arrangement would require approval by the New York State Insurance Department and the NYWCB, according to a December Workers' Compensation Board circular.

The circular laid out other requirements for an LPT deal, which the state calls assumption-of-liability policies. For instance, the circular says a trust purchasing such insurance must do so by making a single, complete premium payment in advance and the policy must be noncancelable.

Mr. Kim said Safety National already has entered into discussions with financially healthy group trusts in New York, while other sources said the insurer also has discussed potential LPTs with closed trusts.

The NYWCB did not return several telephone calls seeking comment.

But Mr. Reller and others said that if terminated trusts purchase an LPT product from Safety National or another insurer to cover their outstanding liabilities, it would reduce assessments that healthy groups and individually self-insured companies would have to pay.

“It just lowers the magnitude of the crises,” Mr. Reller said. “Obviously, the more of these groups you take off the table, the less variability there is in what that number may be.”

It could lower the assessments against individually self-insured employers who oppose having to serve as guarantors of the group trusts' debt, said James O'Bryan, chairman of the New York Self-Insurers Assn. in Buffalo.

“Anything that the trusts—especially the trusts that have defaulted—can bring to the table to help cover their cost of liability is only going to do good things for us in reducing our assessment costs to cover them,” said Mr. O'Bryan, who also is manager of operational services at International Paper Co. in Ticonderoga, N.Y.