Insurance Affordability: Will Companies Start Considering Self-Insurance Programs?

Apr 6, 2023

As the cost of traditional insurance programs continues to rise, many companies are starting to consider self-insurance as a viable alternative

This shift towards self-insurance is driven by several factors, including rising expenses from inflation, a desire for more control over insurance costs, and the potential for significant cost savings. 

What is self-insurance? 

Self-insurance is a type of risk management strategy where a company assumes the financial risk of its own losses, rather than transferring that risk to an insurance company. In a self-insured program, the company sets aside funds to cover potential losses, and may also purchase excess insurance to cover catastrophic losses. Self-insurance is commonly used for property, motor vehicle and liability insurance. 

An assessment of your business’s specific needs will determine the type and extent of business insurance coverage required. It is important to consult one of our insurance brokers at Trident Insurance to make sure that your business is properly protected. 

Why are companies considering self-insurance? 

One of the primary drivers of the shift towards self-insurance is the rising cost of traditional insurance programs. In Australia this year, the annual industry average premium is set to rise by 2.9 percentage. This represents a significant financial burden for employers, particularly small businesses. 

By self-insuring, companies can potentially save significant amounts of money on business insurance premiums. This is because they are only paying for the actual costs of claims, rather than also paying for the overhead and profits of insurance companies. Additionally, self-insured companies have more control over their business insurance costs, and can design their own insurance plans to meet their specific needs. 

Benefit to business owners  

Self-insurance provides business owners with far more control over their money. 

Employers pay premiums for conventional and underwritten policies before any claims can be made. However, a self-insurance plan does not pay money until a claim is made. 

Sometimes claims can take time to settle. Businesses save money until the claim is paid, which allows for greater cost control. 

The added benefit of self-insurance is that it provides strong incentives for business owners to reduce their compensation losses by implementing disciplined safety management practices and injury prevention.  

To determine whether self-insurance is feasible for an employer, one must assess the company’s safety record, business performance, and claims history. 


The transition from traditional insurance to self-funded plans is often seamless 

Are there any risks associated with self-insurance? 

Like any risk management strategy, self-insurance does come with some risks. One of the biggest risks is the potential for catastrophic losses. While companies can purchase excess insurance to cover these losses, there is still a risk that a large claim could exceed the amount of coverage that the company has purchased. 

So, who should consider self-insurance? 

While self-insurance can offer many benefits, it is not the right choice for every company. Self-insurance requires significant financial resources to cover potential losses and a level of risk management expertise to ensure that the program is effective. So, who should consider self-insurance? 

Large companies are often good candidates for self-insurance programs, as they have the financial resources to cover potential losses and the expertise to manage those risks effectively. Large companies can also potentially save significant amounts of money on insurance premiums by self-insuring. 

Small to mid-sized businesses may also benefit from self-insurance, particularly those that operate in industries with high insurance costs or a high risk of employee injuries. However, self-insurance may not be a good choice for all small businesses, particularly those with limited financial resources or a lack of risk management expertise. 

Companies with relatively stable claims histories may also be good candidates for self-insurance, as they are less likely to experience catastrophic losses. Companies with a history of high claims may still be able to self-insure but may need to purchase excess insurance to cover potential losses. 

Finally, companies that are looking for more control over their insurance costs and more flexibility in designing their insurance plans may also want to consider self-insurance. By self-insuring, companies can design their own insurance plans to meet their specific needs, rather than relying on the plans offered by traditional insurance brokers. 

Of course, the decision to self-insure should not be made lightly. Companies considering self-insurance should carefully evaluate their financial resources, risk management expertise, and claims history before deciding. Additionally, companies should consult with legal and financial experts to ensure that they are complying with all regulatory requirements and are properly managing their financial risks. 

Trident Insurance is here to help. 

Self-insurance can be a powerful tool for companies looking to manage their insurance costs and provide more personalised healthcare options to their employees. However, self-insurance is not the right choice for every company, and careful evaluation of financial resources and risk management expertise is essential before deciding. To learn more about self-insurance and whether it is the right choice for your company, we recommend speaking with an insurance broker from Trident Insurance. With their years of experience and expertise in the insurance industry, they can provide valuable guidance and help you make an informed decision about whether self-insurance is right for your company. Contact Trident Insurance today to learn more. 

Feel free to reach out to our insurance expert today for more information.