What does self-insurance entail?

Self-insurance involves a business assuming the financial risk of certain claims rather than transferring that risk to an insurance provider. In this model, the company sets aside funds to cover potential losses, thereby managing its own risk. This can be more cost-effective for organizations, especially when they have a stable and predictable loss experience. By opting for self-insurance, businesses can retain control over their financial resources and navigate their claims processes independently.

In this context, the other options do not accurately reflect the concept of self-insurance. For instance, a company paying claims to other insurers pertains more to traditional insurance practices and the dynamics of risk transfer. Using insurance policies to cover liability indicates a conventional insurance approach, where risks are outsourced to insurers. Similarly, outsourcing risk to insurance providers is a fundamental aspect of standard insurance practices, not self-insurance.