Self-Insurance
Retaining risk with own money instead of transferring it to an insurer.
Overview
Formal retention uses reserves, letters of credit, and for employee benefits, self funded health plans run under ERISA with stop loss coverage capping individual and pooled claims. Large employers self fund health plans to escape state premium taxes and mandates, gain claims data, and tailor benefits, buying specific stop loss above attachment points such as 100,000 dollars per person plus aggregate protection. States permit qualified large employers to self insure workers compensation with security deposits. The discipline is actuarial: reserves for incurred but unpaid claims, cash flow management, and an appetite for volatility smaller firms lack. High deductibles and captives act as partial self insurance between the extremes.
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