Self-Insured Retention Plans

The Cost-Savings Benefits of Self-Insured Retention Plans for Small Business Owners

Self-Insured Retention Plans (SIRPs) are becoming increasingly popular among small business owners as a way to manage their risk. A SIRP is a type of financial arrangement in which an individual or organization agrees to pay for certain losses itself before insurance coverage kicks in. By using a SIRP, businesses can lower the cost of their insurance premiums while also limiting their liability exposure.

Many small business owners opt for a SIRP as they can provide cost savings, but they must consider carefully when making this decision. For one thing, businesses that opt for self-insurance may be taking on more risk than they would otherwise choose to undertake if they elected to purchase traditional insurance policies. Additionally, it is becoming increasingly difficult for small businesses to access the resources and expertise needed to effectively manage the risks associated with self-insuring.

In order to make an informed decision about whether or not a SIRP is right for them, business owners should be aware of both the advantages and disadvantages associated with self-insuring: 


• Cost Savings – One of the most attractive benefits of self-insuring is the potential reduction in overall insurance costs. Since businesses are only responsible for paying up to their retention limit, premiums can be substantially lower than if businesses were paying market rates for full coverage policies. 

• Risk Management – With a SIRP, businesses have greater control over how much risk they’re willing to accept and can negotiate specific types of coverage based on their own needs and objectives. This helps companies better manage the risk they take on while still providing adequate protection from legal liabilities. 


• Concentrated Risk – Self-insured entities may be exposed to larger amounts of concentrated risk since there is no third party insurer involved to spread out any losses that might occur over multiple policyholders. This could result in drastic financial consequences if losses exceed expectations due to unexpected events or high claim amounts. 

• Upfront Costs – While there can be cost savings associated with self-insurance over time, there are usually significant up front costs required when establishing a SIPR program such as obtaining additional lines of credit or capital reserves that may need to be tapped into should large claims arise. 

 In conclusion, while Small Business Owners should thoroughly analyze the advantages and disadvantages associated with Self Insured Retention Plans before making a decision about whether it is right for them; it has become an increasingly popular option among those looking for cost savings while still maintaining adequate coverage against potential liabilities and risks.