Self-Insurance

Self-insurance is a risk management strategy in which an organization or individual chooses to bear the financial responsibility for potential losses, rather than transferring that risk to an insurance company. In self-insurance, the individual or organization sets aside a sum of money to cover potential losses and assumes the responsibility for paying any claims that may arise.  

For example, a large corporation may choose to self-insure for certain types of risk, such as workers' compensation or liability claims. Rather than paying premiums to an insurance company, the corporation establishes a fund to cover potential claims and manages the claims process in-house.

Key features of self-insurance include:

• Risk assumption: Self-insurance involves assuming the financial responsibility for potential losses, rather than transferring that risk to an insurance company.

• Cost savings: Self-insurance can potentially result in cost savings, as the individual or organization does not have to pay premiums to an insurance company.

• Increased control: Self-insurance gives the individual or organization greater control over the claims process and may allow for more customized coverage.

• Higher risk: Self-insurance involves higher risk, as the individual or organization is responsible for paying claims out of pocket.

Regulatory requirements: Some states or jurisdictions may require certain levels of financial reserves for self-insured entities to ensure that they are able to pay claims when they arise.

Adequate resources: Self-insured entities must have adequate financial resources to cover potential losses, as well as the resources to manage the claims process effectively.