Self-insurance

The advantage is that no premium has to be paid, but the organizations own assets are used to pay out claims or losses.

In some cases organizations need to apply for special licenses to self-insure certain risks, such as employee benefits insurance.

Any risk where the potential loss is so large that no one could afford to pay the market premium required to provide cover would not be commercially insurable.

Usually the predictable losses of the risk are retained and self-insured, forming a first or "working" layer of cover, and a stop-loss or stop-gap policy is purchased from the commercial insurance market.

In this way, corporations are able to manage their financial exposure to the self-insurance programme without buying commercial insurance.

The employer may also contract with a reinsurer to pay amounts in excess of a certain threshold, in order to share the risk for potential catastrophic claims experience.