Is the Business Healthy Enough for Self-Funding?
While not exclusive, here are some financial questions to consider when considering self-insurance:
- Has the company been in business for at least three years?
- Is the current liquidity ratio greater than 1.3-1?
- Is the company’s debt to net worth ratio less than 4/1?
- Does the company positive earnings last 2 of 3 years?
- Does the company have positive earnings overall, even after considering a loss year?
- Does the company have sufficient capital to sustain itself during a period of high claim payments; the company should consider evaluating capital sufficiency against state-level captive insurance capital requirements?
- Does the company have a strong risk management culture?
