Many businesses try to save money wherever they can to protect their bottom lines. Insurance premiums can add up, so it’s only logical for companies to consider self-insurance as a way to reduce expenses.
Self-insurance is when a business forgoes third-party insurance policies, and instead independently allocates funds to manage unexpected claims. While this can be used against virtually any type of potential damage or loss, this strategy is not always advisable.
The logic behind it is that providers calculate premiums based on forecasted risk. These figures are designed to profit the insurance company by bringing in more money than they are likely to pay out. Under this reasoning, a business should theoretically be able to set aside funds in case an incident occurs—protecting themselves without an insurance company taking a cut.
Some of the most prevalent types of self-insurance options for businesses include commercial vehicle and fleet coverage, general liability coverage, and property coverage with laws and restrictions varying by state and industry.
Federal law requires any business with employees to hold unemployment, workers’ compensation and disability insurance, but state guidelines may also call for additional policies. Failure to comply with these requirements can lead to costly penalties, so decision-makers should speak to qualified insurance professionals before choosing a course of action.
To help you weigh your options, bcs has outlined the key advantages and disadvantages of pursuing self-insurance.
All forms of insurance are essentially risk transfer strategies.
When you purchase an insurance policy, you are paying a third party to shoulder some of the risk. If you self-insure, however, you are choosing to retain the risk yourself.
Ultimately, understanding your business' financial means, coverage needs, and the level of risk associated with your industry is crucial for making informed decisions regarding whether self-insurance is right for you, and what you can afford to cover.
For many businesses, the ideal solution will likely be a combination of third-party policies and self-insurance. Self-insuring against lower-risk claims while maintaining third-party coverage for higher-risk ones can help your business stay financially protected, and save you money in the long run.
Every business should purchase insurance based on their specific needs and risk posture.
However, when partnering with third-party vendors, organizations must also consider their insured status to maintain compliance and mitigate liabilities.
For efficient document storage, tracking, and correction processes, consider cloud-based solutions. These platforms offer convenient access to certificates of insurance (COIs) and other vital documents, while also automatically addressing any deficiencies, ensuring a smooth path back to compliance.
It’s as easy as 1-2-3: upload the insurance documentation, store it in the secure cloud server, and let the automated technology highlight fields requiring correction.
Whether your vendors are self-insured, maintain a conventional policy, or have some combination of the two, bcs’s full-service tracking seamlessly manages all the intricate details of the COI tracking process so you can focus on running your business.
bcs is a leading vendor management solution offering full- and self-service COI tracking options designed for vendor management, onboarding, and so much more. To effortlessly manage your third-party insurance documentation, contact us today or schedule a demo.