What does “self-insurance” refer to in the context of surplus lines insurance?

Self-insurance refers to a practice where a business sets aside its own funds to cover potential losses instead of purchasing a traditional insurance policy from an insurer. This approach allows businesses to retain the risk and manage it internally, effectively becoming their own insurer by creating a reserve for unexpected events. It can be a strategic choice for companies with sufficient financial resources and risk management expertise, as it may result in cost savings over time when compared to conventional insurance premiums.

In the context of surplus lines insurance, self-insurance can be relevant as these policies can provide coverage for risks that are not typically covered by standard insurance due to their unique or high-risk nature. By setting aside funds for liability or property damage, businesses can address specific exposures that might not be insurable through traditional means.

The other options suggest different types of insurance practices. Purchasing additional insurance from non-admitted insurers refers to a scenario where insurance may not be available through licensed insurers, as opposed to self-insuring. Transferring all risks to another insurer implies a complete offloading of risk, which does not align with the concept of self-insurance. Lastly, only buying state-licensed insurance coverage directly contrasts the flexibility that surplus lines and self-insurance typically provide for handling specific risks.