Selfinsured

Self-insured, or self-funded, is a risk management approach in which an entity retains the financial risk of paying for its own losses rather than transferring that risk to an insurer. While individuals can theoretically self‑insure, the arrangement is most common among organizations—especially employers providing employee health benefits or workers’ compensation coverage—and, in some cases, government or nonprofit entities.

Under a self‑insured plan, the employer funds the anticipated claims out of its own resources. Claims are paid as they arise from a dedicated funding arrangement, such as a general fund or a trust. Because an insurer does not assume risk, the employer can modify plan design, provider networks, and eligibility rules. To limit exposure to large or unpredictable claims, stop‑loss insurance or reinsurance is often purchased. A third‑party administrator (TPA) or managed care organization may handle claim processing, provider contracts, and record‑keeping.

Regulatory and fiduciary frameworks vary by jurisdiction. In the United States, most employer self‑insured plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA), which preempts most state insurance regulation. Stop‑loss policies are typically regulated by states. Other countries have different regulatory structures, but common elements include fiduciary duties, financial reporting requirements, and compliance with health, labor, or consumer protection laws.

Advantages of self‑insurance can include potential cost savings, greater control over plan design and cash flow, and flexibility to tailor benefits. Disadvantages include higher volatility, substantial capital and administrative responsibilities, and complex regulatory compliance. Self‑insurance is most viable for organizations with enough financial resilience and claims experience to manage risk effectively.