What is self-insurance?

When there is a self-insurance we are talking about an "insurance" that uses its own resources to be able to cover the costs that arise from a claim. In this case, the person or company in charge assumes the consequences of the risks to which they are exposed.

It is the opposite of the acquisition of a policia, in which the risks are derived from a third party that is covered by an insurer.

Obviously, for self-insurance to work, it is necessary to have a special fund that has sufficient financial capacity to cover the expenses that may arise. The resources we are talking about and that must make up the fund, must be totally liquid (or as liquid as possible) so that they can be made available as quickly as possible.

This type of funds is intended for fortuitous events and non-current expenses that may arise. On the other hand, it is important that this fund can anticipate the maximum expenses required by a claim, previously calculating the amount necessary to serve as a fund.

The occurrence of the event and the characteristics of the person or company that insures said fund must also be taken into account for the calculation.

On the other hand, among the most relevant aspects of self-insurance we can find the following:

  • Eventual or sudden expenses. If it is invested to be able to have decent insurance to cover the needs of people or companies, we can indicate that it is more of a saving than an expense. However, if the number of accidents or misfortunes is constant and fairly regularly, we will have to take out a policy failing that.
  • Immobilized capital. These are resources that we will not be able to use because we will have to invest them in the fund.
  • Need to have to control. The money that goes into self-insurance will need to be monitored and managed, which would take time and resources to do so.

Leave a Comment