Self Insurance

By self-insuring some part of their risk, organizations can gain more control over their cost of risk while potentially improving coverages and limits, enhancing claims management and loss control, and gaining cash flow advantages.

Protected Self-Insurance

Protected self-insurance is a system in which an organization retains and handles the manageable, predictable risk within its operations, and transfers the catastrophic risk. Excess insurance is placed with specific and aggregate limits so the organization can anticipate costs in the program.

Here’s how it works:

A self-insured retention limit is selected by the insured as the maximum amount of any one loss that the insured can feasibly absorb for each line of insurance.

A loss fund limit is established as the maximum amount of the usual and expected accumulation of losses within the self-insured retention in any given policy period. It is based on previous loss experience plus a factor for projected losses that anticipates inflationary trends and an allowance for unreported losses. Despite its name, the loss fund is not necessarily fully funded at the inception of the program; losses may be paid from an account whose funding level is based on an estimate of expected paid losses.

Specific excess insurance provides coverage above the self-insured retention, by line of coverage, to protect the insured from abnormal severity of losses and provide appropriate catastrophic coverage.

Aggregate excess (excess loss fund) insurance provides coverage above the loss fund limits and protects the insured from an abnormal frequency of losses. If the total amount of losses exceeds the loss fund, the organization is insured up to the excess limits selected.

A maintenance deductible functions the same as any insurance deductible for small losses, thereby protecting the stability of the loss fund. The maintenance deductible does not reduce the loss