Navigating Medical Malpractice Insurance: Self-Insured Retentions

A self-insured retention (SIR) is another tool often explored by organizations considering risk financing options. Positioned between deductible programs and captive insurance on the risk spectrum, self-insured retentions can offer some of the benefits of both approaches, while also presenting similar challenges.

At first glance, an SIR may appear to be just another form of deductible, however there are important distinctions. Self-insured retentions represent a primary insurance limit, which is funded and administered by the insured party. Like captive insurance, the insured party bears responsibility for managing claims, including incident tracking, maintaining a loss run, establishing reserves, and managing legal claims. This process includes selecting and overseeing attorneys as well as ensuring appropriate funds are set aside to cover claims.
 
Some organizations opt to contract with a third-party administrator (TPA) to handle these added responsibilities. Although this introduces an additional cost, an experienced TPA often brings well-established processes and relationships, offering efficiencies that self-administration may lack. When selecting a TPA, organizations should consider the administrator’s experience in their business sector and geographic region.

Organizations may also choose to contract with an actuarial firm to estimate expected losses within the self-insured layer. Actuaries typically conduct an annual review of claims and exposures to provide a recommended funding requirement.  Ensuring sufficient reserves to cover claims is essential for the success of a self-insurance program.
 
Choosing a self-insured retention as a first-layer of a risk financing strategy provides organizations with greater control than traditional insurance and can lead to reduced premiums. However, this approach requires careful consideration of the costs associated with paying claims within the self-insured layer, as well as the additional administrative expense and burden.
 
In most cases, a self-insured retention represents only one component of an organization’s broader risk financing strategy, typically supplemented by commercially provided excess or umbrella policies to offer additional coverage and security.

MagMutual: Your Trusted Insurance Partner 

Navigating the complexities of insurance options can be challenging, but at MagMutual, we are committed to guiding you every step of the way. Over the coming weeks, we will publish a series of in-depth articles exploring various insurance solutions to help you make informed decisions. Our team of experts is always available to answer your questions and provide personalized advice. Reach out to Kevin Carnell at [email protected] or Johnathan Brutlag at [email protected] to learn more about how MagMutual can support your organization's insurance needs.