What are the risks of self-insuring?

Self-insuring is the practice of taking on the responsibility of paying out any claims or losses out of one’s own pocket, rather than relying on an insurance company. While there are advantages to self-insuring, such as more control over costs, there are also some risks. The most significant risk associated with self-insuring is the potential for a large loss. Insurance companies spread out the cost of claims among many policyholders, but a self-insured individual is entirely responsible for any claims that arise. This could be financially devastating for a self-insured person, particularly if multiple losses occur in the same year. Another risk associated with self-insuring is the lack of regulatory protections. Insurance companies must follow certain laws and regulations and, in the case of North Carolina, an insurance company must have a license to operate. A self-insured individual does not have these same protections and may unknowingly put themselves in jeopardy of fines or penalties from the state insurance commissioner. Finally, self-insuring can make a person more vulnerable to litigation. Insurance companies provide a certain level of protection, such as legal assistance and resources, in the event of a lawsuit. A self-insured individual may not have access to these resources and may be left to face the lawsuit alone. Self-insuring can provide an individual with some advantages, but it is important to weigh the risks as well.

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