What are the risks of self-insuring?

Self-insuring is when an individual or business takes on the responsibility of paying for losses and damages from their own financial resources instead of obtaining insurance from an outside provider. In Minnesota, self-insuring poses a number of risks, including financial, legal, and administrative risks. The primary financial risk of self-insuring is that losses or damages can be far greater than what was expected. If the individual or business is not prepared to cover a large financial burden, it can have significant financial repercussions. Even if the individual or business is able to cover the expenses, the funds that are used to cover losses may not be available for other investments or uses. There are also legal risks associated with self-insuring. Depending on the nature of the business, an individual or business may be required by law to have insurance. Failure to comply with this can lead to legal trouble. Additionally, if self-insuring fails to cover losses or damages that are due to a third party, the individual or business may become liable for damages and face legal action. Finally, self-insuring can be an administrative burden. Without the help of an insurance provider, the individual or business must create and manage their own claims system. This can be a time-consuming process and may be outside the scope of existing staff or resources. For these reasons, it is important to carefully consider the risks of self-insuring before making the decision. Before committing to self-insuring, individuals and businesses should be sure they are fully informed of the potential financial, legal, and administrative risks.

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