" In addition to employee benefit trusts, liability insurance risks that meet certain size criteria can be partially self-insured through a high excess known as a self-insured retention or SIR. A self-insurance retention introduces many of the features of self-insurance which involve a company acting as its own insurance company but with losses capped at a defined amount. "
Whilst a deductible or excess is often viewed as a type of self-insurance, a self-insured retention increases a company’s financial interest by requiring it to pay and actively manage claims up to a certain pre-determined amount.
When adopting a self-insured retention, an awareness of insurance, claims handling and risk control is required. Consequently, this approach is best suited to larger companies that have the resources and knowledge to manage their claims exposures. Creating an awareness of these exposures and applying resources to manage them can often be a first-step towards a broader self-insurance arrangement such as establishing a captive.
Under a self-insured retention plan, the insured company performs many of the functions of an insurer by assuming responsibility for paying claims and defending them.
Companies considering a self-insured retention need to be aware of the potential disadvantages as well as the advantages. In order to mitigate any potential downside, analysis should be undertaken of past experience and any increased costs as well as the potential financial exposure.