The Advantages of Self-Insurance

The Advantages to a self-insurer can be summarised as follows:

(i) Cost Savings

The principal aim of Self-Insurance is to improve a company's operating profits by reducing premium costs. By assuming the role of an insurer, costs such as overheads for policy administration, assumption of risk and profit are retained by the self-insuring company. Self-Insurance plans also avoid premium taxes and residual market loadings which are charged on insurer premiums and, although these are normally charged on any excess or specific and aggregate coverages, these are significantly less as the excess premiums are much lower than the full coverage equivalent.

(ii) Plan Design

Self-Insurance plans and risk transfer programs can often be modified to provide coverage that commercial insurers are unable to provide. For example, self-insured medical benefit plans can be tailor-made to individual company requirements, although workers compensation is subject to statutory coverage regulation and cannot be amended in any state other than in Texas. Risk retention groups and captive companies are often set up to provide coverage not generally available in the commercial marketplace.

(iii) Improved loss experience

Self-Insurance often brings improved loss experience as the company (or group) that is self-insuring is accountable for its own losses. As much as a company can gain from improved loss experience, it can also lose out from poorer than expected loss experience, although being at risk does serve to make the self-insurer more aware of its exposures. The awareness that is generated often results in loss prevention techniques such as safety programs being established. For example employee benefit plans can be established that provide annual health checks, workers compensation self-insurers have an incentive to implement safety in the workplace programs and companies self-insuring their automobile liability programs have an incentive to maintain driver standards through regular driving courses. Larger companies who insure through captives often develop their own in-house risk management divisions to minimise potential loss exposures.

(iv) A Better Workplace

Employers who make their workplaces safer and who are able to better protect employees health often achieve increased morale and productivity by being seen as a caring employer.

(v) Faster Loss settlements

As a self-insurer is effectively paying its own losses, these can be settled immediately and disruptions to the business minimised.

(vi) Enhanced Cash Flow

Improving the workplace often leads to improved productivity through enhanced employee morale. If a company is paying its own claims, damage to property can be dealt with quickly and efficiently with losses to business earnings reduced. Improved loss experienced improves the bottom line as fewer funds are required to settle claims and administration costs are reduced.