In self-insurance, which of the following is typically true?

In self-insurance, a business takes on the financial risk of covering its own losses rather than transferring that risk to an insurance company. This approach is often adopted by larger organizations that can absorb the risks associated with potential claims, allowing them to retain control over their financial responsibilities. When a company opts for self-insurance, it directly pays for any claims that arise, rather than relying on an insurance provider to cover those expenses. This can lead to cost savings if the actual claims are lower than anticipated, making it a strategic choice for some businesses that can accurately assess and manage their risk exposure.

While third-party administrators may be involved in managing claims, especially in situations where a business has chosen to outsource that aspect, the core principle of self-insurance remains that the business itself is financially responsible for the claims. Thus, the direct payment for claims is a defining characteristic of self-insurance, further emphasizing the business's role in handling its own risk.