Self Insurance

It is inappropriate to Insure those risks that can be managed in house.

An important consideration of any Insurance programme is the degree to which a company is able to accept, for its own account, the whole or part of any particular risk.

The degree of self Insurance depends on:-

1. The competitiveness of the Insurance market. Insurance premiums can vary year by year dependent upon the underwriting capacity of Insurers. If rates are low then self Insurance is usually ineffective.

2. The size of a Client. Usually, by its very nature, a sizeable organisation is more able to generate a risk reserve which will cover the normal risk associated with a particular process; as a result it may be considered prudent to insure only against catastrophe.

The primary object of self Insurance is to reduce cost. Thus over the medium term, the premium saved must exceed both the losses and the additional administration and legal costs.

To obtain any meaningful benefit there must always be strict safety and risk management procedures in place.

Methods of self Insurance include:

Non Insurance of specific risks:

The least sophisticated but, in many cases, the most logical and common method of risk retention.

Excesses or deductibles:
Premium reductions are available if a client is able to accept losses to a predetermined level for their own account.

First Loss:
If it is possible to calculate accurately the maximum loss it is sensible to limit the cover purchased to that figure.