Self-insuring your business means taking on all the financial risks covered by insurance policies. Employers who choose to self-insure pay claims or damages out-of-pocket and do so to improve the operating profits of their business by reducing premium costs. Self-insurance entails setting up a trust or a similar account where money is set aside for any claims that may arise.
Usually, a third-party administrator manages and processes claims, unlike traditional insurance plans where the insurance agency deals with such claims. There are good and bad sides to it, as detailed below.
Advantages of self-insuring your business
The biggest benefit centers around saving costs that the business would have incurred from paying insurance premiums. Insurance companies may increase premiums, and self-insuring means that your business does not have to pay these increased premiums. With self-insurance, you only pay what is necessary, as per the claims that come about.
Self-insurance also makes a business more aware of the risks based on past events, which helps manage the occurrence of such risks. It all translates to a safer work environment for the employees.
The disadvantages of self-insurance to your business
Risk exposure is a downside to self-insuring your business. The amount dedicated to meeting claims may not be enough, which may negatively impact the business. The cost of managing risk is also a significant disadvantage. Setting money aside is not all you have to do. You have to set up a team to manage and analyze risk, which may mean additional costs to the business. Outsourcing the same to an external service provider will also cost money.
Is self-insurance right for your business?
It all boils down to the financial plans and objectives of our business. Careful analysis of the cost of paying insurance premiums against the likelihood of dealing with expensive claims may help you decide. If you are thinking of self-insuring your business, weighing in all the pros and cons is necessary. The future of your business may depend on the choice you make, and making an informed decision is crucial.
