Self-Insurance Making Gains

Frustrated with the high cost of insurance, a growing number of businesses are privately setting aside money to cover everything from cut fingers on the factory floor to dented fenders on company cars.

Self-insurance, as it is known, accounts for about 22% of the $176-billion property-casualty insurance market, a fivefold increase from 1980, according to a recent study by Johnson & Higgins, an insurance consulting firm.

Self-insurance is the fastest-growing segment of the commercial insurance market, expanding at an average rate of 17% a year, contrasted with an 8% growth rate for conventional premiums, the study showed.

“When a company pays its premium to an insurance company, those dollars are gone forever--whether or not they have a loss,” said Don Krutek, a senior vice president at Johnson & Higgins in Chicago.

Setting aside money internally to cover claims can save companies up to 20% of the premiums formerly paid out to insurers, Krutek said.

The largest portion of self-insurance dollars--about 40%--goes to fund worker’s compensation plans.