Self insurance

Self insurance occurs when a business elects to absorb the risk of loss, rather than offloading it to a third party insurer. Ideally, this means that the self-insured entity sets aside funds for use when a significant loss occurs; the funds come from what would have been insurance premiums paid to an insurer. This approach can save money by eliminating the profit of an insurer. However, it also presents the risk of loss if an organization experiences a major, unexpected loss. Consequently, most self-insured entities still obtain insurance to cover the risk of catastrophic losses, while covering all smaller incidents themselves.