Well, maybe. Self-insurance was a trend of a decade ago that didn't travel well into the new millennium. Commercial insurance is now competitively priced, and many companies that were self-insuring gave it up.
Still, some businesses-usually large corporations with plenty of cash--prefer to self-insure. According to Tepp, a company can do it one of three ways by:
- Agreeing to a large deductible, then using cash or credit to fund it.
- Self-insuring up to a certain amount (such as $250,000) then purchasing so-called excess insurance, which kicks in when losses above that amount occur.
- Joining with a group of businesses operating in a similar industry or region to establish your own insurance fund. Members pay premiums, plus a fee to join.
"Alone, these businesses wouldn't be large enough to self-insure, but together they are," says Robert P. Hartwig, vice president and chief economist for the Insurance Information Institute in New York City. "This way, you all have a stake in each other's businesses, and one bad claim won't wipe out a business. The problem is, if the companies in your group have a bad year, you'll be asked to pay more. If there are 100 companies in your group and 10 have fires and are burned to the ground, the premiums could cost much more than anyone expected."