Self-Insurance

Self-insurance is a form of planned risk retention. It makes sense when losses are predictable, the organisation is large enough to absorb them and the cost of insurance would exceed expected losses.

Large employers in the United States often self-insure their employees' health benefits, paying claims directly rather than buying a group policy, while hiring an insurer or administrator to process claims. Many large companies also self-insure parts of their property, motor or workers' compensation risks.

For example, a company with thousands of employees might expect its annual health claims to be fairly stable and choose to pay them directly, buying stop-loss insurance to cover unusually large claims above a set level.

Self-insurance can save money, improve cash flow and give more control, but it exposes the organisation to unexpected large losses, which is why it is often combined with insurance for catastrophic events. For individuals, building an emergency fund instead of insuring small risks, such as minor electronic devices, is a simple form of self-insurance.