Optimizing Self-Insurance

Any large economic project will invariably involve some form of insurance, as a necessary part of its risk management process. Depending on the project, the premiums for such insurance could potentially assume formidable proportions, significantly affecting overall project cost. Not surprisingly, project managers therefore occasionally choose to self-insure (i.e. forego the services of the usual insurance entities and assume the liability themselves, as just one more cost of doing business).
The main aim of this paper is to demonstrate that it is not always necessary to approach the issue of self-insurance in a binary manner: In many cases, the choice will involve retaining part of the risk/liability and passing on the rest to the appropriate insurer(s).