Magazine article Risk Management

Practical Self-Insurance: An Executive Guide to Self-Insuran

Magazine article Risk Management

Practical Self-Insurance: An Executive Guide to Self-Insuran

Article excerpt

Since the early years of risk management, companies have found self-insurance to be a useful and effective risk financing tool. What are the criteria that risk managers should use when determining whether or not to self-insure, and at what levels? The answer to this question is crucial, since not all companies exhibit the financial conditions that make a self-insurance program a viable risk financing alternative.

Risk managers can find an answer to this pivotal question in the book, Practical Self-Insurance: An Executive Guide to Self-Insurance for Business, written by John Boyce-Smith and Alan M. Pearce. The authors use their prodigious experience in the disciplines of risk management and corporate finance to help readers determine whether self-insurance is appropriate for their firms' risk exposures.

By definition, self-insurance occurs when an organization retains all or part of its risk by absorbing the risk portion that management believes the company can safely finance itself. Then, to avoid catastrophic losses, the company purchases insurance for the remaining levels.

Mr. Boyce-Smith and Mr. Pearce point out that most large or medium-sized businesses would benefit from self-insurance for at least some of their exposures. They also note that the larger the company, the more likely the firm can broaden its self-insurance program and increase the levels of risk assumption.

Among the major benefits of Practical Self-Insurance are its concision, well-organized structure, easy readability and use of clear, understandable charts. …

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