Self-insurance structures, explained for boards
When carrying your own risk beats buying cover — and how a board can tell the difference before committing.
By The Khumalo Group
Buying cover is simple to explain and easy to approve. Carrying your own risk is neither — but for the right organisation, at the right scale, it is often the better decision. The question a board should ask is not “is self-insurance risky?” but “do we understand our own risk well enough to price it?”
What self-insurance actually is
Setting aside your own reserves to meet claims, rather than paying a premium to transfer them. You keep the margin an insurer would have taken — and you keep the risk they would have carried.
When it makes sense
- Your exposure is large enough that premiums are a real cost, and stable enough to model.
- You have, or can build, the data to price it honestly.
- You can absorb a bad year without threatening the organisation.
The discipline it demands
Self-insurance replaces a premium with a model. That model has to be defensible: assumptions visible, downside tested, reserves sized for the bad year rather than the average one. Done well, it turns an expense into a managed position. Done casually, it turns a saving into a liability.
- risk
- Insurance
- Co-operatives & Member Organisations