Self Insured Properties

[wraftery 1,275]

The implication of a company like McDonald's being self insured means that they consider their properties disposable cuold not be further from the truth. A company of that size with that much money simply does some math and comes up with a decision. The logic goes like this for a hypothetical company.

1. Out of 1000 properties, yearly on average, 1 will be a total loss, 7 will suffer severe fire damage, 32 will have minor fires with damage under $5000, If the company can pay for this average plus an extra percentage for a high loss year they go to step 2.

2. Can they afford a huge lawsuit which occurs every 50 years? If yes, and the annual cost is cheaper than an insurance company charges then self insurance is a viable choice.

I presented a simplified version with only two criteria, but your insurance goes through a similar process to determine yor insurance rate. It's called insurance underwriting.

Neither the insurance company nor the self insured company considers their properties disposable. They are both just playing the odds.

[x635 4,066]

Awesome information. Was always curious about that.

Does the same go for municpalities that self insure their vehicles?

[wraftery 1,275]

Awesome information. Was always curious about that.

Does the same go for municpalities that self insure their vehicles?

Not sure exactly how the liability part works. You say "I have enough to pay for my lost property," But I am sure that state laws would require you to have a minimum amount of liability insurance (or escrow or reserved funds).

[ny10570 745]

Not sure exactly how the liability part works. You say "I have enough to pay for my lost property," But I am sure that state laws would require you to have a minimum amount of liability insurance (or escrow or reserved funds).

I believe to self insure a municipality only has to demonstrate that it is financially prudent to do so. They then submit to the state legislature their plan and it gets voted on. There's a group here in NY called "The NYS self insured community association" or something to that effect to support self insured communities, but its purely an advisory and lobbying group. I met one of their reps in Albany while kissing tookus on behalf of FDNY EMS a while back.

[Bnechis 3,961]

I believe to self insure a municipality only has to demonstrate that it is financially prudent to do so.

If a community can afford to be self insured it will in the long run save money. If it is determined that $5m is the minimum needed to be covered (I believe the formula is developed by the NYS Ins. Dept.) then the community must reserve $5 (which can gain interest and grow for future needs. If the community is not self insured it will pay 20-30% ($1-1.5m) per year to an insurance co. for coverage. If there have been no major claims in 4-5 years then they have paid out the $5m and have nothing to show for it.

Another way to cover a municipality is catastrophic coverage. Effectivly this is like having a major deductable policy. We use this and it means we are self insured for the 1st million (or so) and after that insurance kicks in. It reduces the cities costs for coverage, but if we ever had a multi million dollar claim, the outside insurance would kick in

[wraftery 1,275]

If a community can afford to be self insured it will in the long run save money. If it is determined that $5m is the minimum needed to be covered (I believe the formula is developed by the NYS Ins. Dept.) then the community must reserve $5 (which can gain interest and grow for future needs. If the community is not self insured it will pay 20-30% ($1-1.5m) per year to an insurance co. for coverage. If there have been no major claims in 4-5 years then they have paid out the $5m and have nothing to show for it.

Another way to cover a municipality is catastrophic coverage. Effectivly this is like having a major deductable policy. We use this and it means we are self insured for the 1st million (or so) and after that insurance kicks in. It reduces the cities costs for coverage, but if we ever had a multi million dollar claim, the outside insurance would kick in

Thanks, Barry. The same logic can be applied to a company like Mickey Dee's. The fact that a building is self insured is probably not even a minimal factor in the decision to go to defensive mode. Things like Building construction, fire involvement, resources, etc. and not the owner's insurance policy govern your decision to go defensive.

On the other hand. look at what happened after Katrina with a so-called reputable insurance carrier like State Farm. State Farm played a game of semantics. Was it wind damage (covered) or flood damage (not covered)? State Farm said mostly flood damage and a lot of "insured" people got stiffed and lost everything.

No owner or franchisee wants to go out of business. And it's not only the building loss that affects the community. If there are no burgers sold, there is no paycheck for the burger flipper or the fry guy.

Try this while you are out doing company inspections (you do do company inspections,right?): Ask the owner of a chain fast food joint how much the gross take is per hour for that store. I think it will amaze you.