Self Insurance

Self Insurance describes a decision, normally by a corporation, not to insure a particular risk. Put another way, self-insurance means no insurance.

For example, a company may make a decision not to insure for collision damage for company owned vehicles. It may determine that its annual collision damage on company owned vehicles is $120,000, but the insurance to cover this risk costs $130,000. The decision is then made to self insure. Normally, a company would accrue $10,000 per month for self-insurance for collision damage. In the US, such an accrual would not be deductible for tax purposes, although the actual damages paid for would be.

Companies may also self-insure their health insurance plans for employees. Usually, they will use a "third party administrator" to administer the claim administration for such a plan, paying only for claims approved plus a fee to the administrator. To cover major medical expenses (such as an organ transplant) the company would also purchase a "stop loss" policy, whereby the policy will cover claims above a certain amount (for either an individual's claims or total claims for the company).