Hi everyone, Kyle Goeman here with Citizens Alliance Agency. I have been in this industry for 20 years now and have seen strategies from, "becoming your owner banker" through life insurance, pension maximization planning via annuities, to captive carriers trying to beat the property casualty companies at their own game. One thing holds true for every company: they are either trying to mitigate risk or increase investment to have a profitable year.
In today’s landscape where bonds are paying a premium, more carriers are tightening up on accepting customer insurance risks. If you are a customer looking to self-insure, here are eight key considerations:
Advantages to Consider:
Cost savings: Self-insurance proves cost-effective for individuals and businesses with low-frequency, high-severity risks. By avoiding premium payments, individuals can save money over time.
Customization: Self-insurance grants greater flexibility in tailoring coverage to specific needs, eliminating unnecessary expenses and reducing costs.
Risk Management Controls: Organizations opting for self-insurance gain direct control over their risk management strategies. Implementing safety measures and loss prevention programs becomes feasible.
Cash Flow Management: Self-insured entities maintain control over their cash flow since they do not pay regular insurance premiums. This can be advantageous for businesses with fluctuating income streams.
Tax Benefits: In some jurisdictions, contributions to a self-insurance fund may be tax-deductible, offering potential tax advantage for entities opting for self-insurance.
Challenges to Consider:
Financial Risks: The most significant drawback of self-insurance is the potential for financial exposure. Unforeseen, substantial losses can strain an entity's resources if the self-insurance fund isn't adequately funded.
Administrative Complexity: Managing a self-insurance program can be administratively intricate. Entities must have the expertise to assess risks, establish appropriate reserves, and efficiently manage claims.
Regulatory compliance: Depending on the jurisdiction and the coverage nature, self-insured entities may be subject to specific regulatory requirements.
In conclusion, whether self-insuring or opting for higher deductibles, it is like cutting up an apple. While you can slice it in many ways, it remains an apple. Accounting for risk transfer and understanding risk exposure and financial capacity are essential. Despite advantages like cost savings and customization, careful consideration of associated risks and responsibilities is paramount before adopting a self-insurance approach. Consulting with seasoned insurance professionals and risk management experts can aid entities in making informed decisions tailored to their unique circumstances. We invite you to reach out to our team at Citizens Alliance Agency for a comprehensive risk plan evaluation.