Self Insurance Plans

Insuring a business is not an easy task now days for the premiums of business insurance keeps on increasing. Premiums for healthcare itself have become double since 2008. The terrorist attack on world trade centre, 9 11 as well as issues like tsunami, hurricanes and storms have caused the increase of insurance premium for businesses. At the same time these issues have reduced coverage provided by insurance schemes.

An option available for business firms is of self insurance plans. In this method the business firms will insure their own risks.  By this method business firms can control low level risks in the organization and at the same time reduce expenditure towards premium. The method is to insure the risk of a firm by itself. Thus the firm itself becomes its insurer. This type of insurance can be done for a certain risk level or for a certain risk type. In this method some money is kept aside for managing risks and claims associated with it. It is usually large business firms that practice this method.

Types of self insurance

Self insurance is a method is risk management where amount will be set aside for compensating future loss. There are two types of insurance depending upon how the funding is made. The types are given below:

  1. Fully insured
  2. Self insured plans

Benefits and drawbacks

There are benefits and draw backs for this. Self Insurance Plans have to pay premiums. Self Insurance Plans are available for all risks. The risk to be insured should represent a future or uncertain event. Under Self Insurance Plans the owner or the person who has the plan will have to pay the premium amount. A group Self Insurance Plans  is formed by an organization of a number of employees that have created a not for profit corporation or association to which they pay premiums to run self-insurance of their workers' compensation and healthcare benefits loss exposures.

Self Insurance Plans are similar to indemnity plans. The main difference of Self Insurance Plans is that these plans will not always allow the covered policy holder to choose. Most of the Self Insurance Plans do allow selecting the insurance but some hospitals or doctors will not allow people to choose their own hospital or doctor if he has taken a health insurance plan. Self Insurance Plans are subject to employee retirement income security act or this is popularly known by other name ERISA. This is a federal law.

There are certain risks that cannot be insured like this without approval from state. One such matter is workers compensation which can be self insured only with the approval of state. Business firms can also form risk retention groups as per Federal regulations and specific guidelines.