What is Self-Insurance?

Self-Insurance involves a formal decision to retain risk rather than simply purchase it from a conventional commercial insurance company. Whilst the main objective of self-insurance is to save premium and improve a company's financial performance, self-insurance differs from standard insurance programs in that it requires a company to adopt many of the functions of a traditional insurance company.

Across the world today, thousands of companies are benefiting from an alternative way of buying insurance to protect their businesses and their employees. The process is known as self-insurance and if it is right for your business then the potential benefits can include lower insurance premiums, improved insurance coverage, more reliable insurance, a safer workplace and an improved bottom line.

selfinsurancemarket.com looks at the most common forms of self-insurance in use today. We explain how self-insurance works and what the potential benefits to a company can be.

We provide information designed to enable companies to discuss its insurance needs with service providers armed with a basic knowledge of self-insurance and help them decide whether they might benefit from becoming self-insured.

How Self-Insurance Works

Self-Insurance has several key features that distinguish it from traditional insurance programs. Rather than taking a higher retention on a traditional insurance program, Self-Insurance requires the company to assume the role of an insurer. Because a Self-Insured company is liable for claims up to specified amounts, it has a direct financial interest in keeping losses and claims frequencies as low as possible. This is achieved through loss prevention and control, a greater awareness of its claims and the steps that can be taken to reduce them.

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Making the Decision to Self-Insure

Before deciding to Self-Insure, there will be some specific areas that a company should look at to ensure that Self-Insurance is a viable proposition.

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The Advantages and Disadvantages of Self-Insurance

Self-Insurance is by no means appropriate for every organization and a feasibility study will play a role in determining the suitability of Self-Insurance. Prior to performing such a study,a prospective Self-Insurer will need to be aware of both the advantages as well as the disadvantages of adopting a self- Insured approach.

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Limiting Risk through the Self-Insured Retention

Most Self-Insurers are unable to accept responsibility for all losses as they could face financial ruin from adverse experience. Consequently, insurance and reinsurance programs can be purchased to protect the Self-Insured above a Self-Insured Retention. A Self-Insured Retention is the amount that the Self- Insured company or group keeps for its own account and is set according to each company or group’s appetite for risk as well as the availability of cover

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