Whilst a deductible or excess is often viewed as a type of self-insurance, a self-insured retention increases a company’s financial interest by requiring it to pay and actively manage claims up to a certain pre-determined amount.

When adopting a self-insured retention, an awareness of insurance, claims handling and risk control is required. Consequently, this approach was best suited to larger companies that have the resources and knowledge to manage their claims exposures. By creating an awareness of these exposures, providing you with access to our risk management portal & applying resources to manage them can often be a first-step towards a broader self-insurance arrangements.

Often, clients reach the stage where they perceive that the cost of the premium is excessive given the nature of the risk, and their own claims history. This is where a decision has to be made. Do we continue to pay away premiums and subsidise the insurers and their clients with higher claims histories? Or do we investigate alternatives to conventional insurance? If we choose the latter, this is called “Alternative Risk Funding”.

The most basic form of “Alternative Risk Funding” is Self Insurance. Self Insurance may take the form of just accepting the risk, doing nothing, and dealing with each loss as and when it happens. Alternatively, it may include setting up internal funds specifically set aside for the particular risks involved.

The form of self insurance chosen will depend on the size and number of losses expected. High frequency, relatively low cost losses such as Motor Own Damage are well suited to self funding. We suggested that Third party injury and damage losses are, initially, omitted from the exercise. Third Party claims are less controllable
than Own Damage. It is preferable that the funds set aside for self insurance are closed off as soon as possible at the end of each year to ensure the accuracy of loss data upon which the following years’ Self Insurance will be based. Typically, third party claims, especially those involving injury, take far longer to settle than “in house” own damage losses.

Insurers apply varying level of analysis to past claims histories to establish future premiums. For large motor fleets, the “Burning Cost” basis is frequently used. Other, more statistically accurate, methods are also used. However for the purpose of this exercise, we will follow the method commonly used in the industry.

You don’t have to pay insurance premium tax (IPT), on any self-insured fund which is now 12%.

There are however additional set up charges and normally a letter of credit will be required by the insurer who will step in at a pre agreed claim level.

Fleets that self-insure need to ensure that all drivers are focused on the cost of collisions, preventing them and – in the event that they do occur – reporting them quickly and efficiently so that the third party claims can be handled appropriately.

Self-insuring sharpens fleets need to have robust risk management procedures. Fleets that place a strong emphasis on risk management are more than likely to be the ones that actively consider implementing self-insurance.

We have noticed an increase in the number of queries from fleets looking to implement self-insurance recently, although the numbers involved are still relatively small in the context of the numbers of conventionally insured fleets once costs have been reviewed.