How is 'self-insurance' defined in the context of surplus lines insurance?

Self-insurance is best defined as a financial arrangement where an entity assumes its own risk. This means that instead of purchasing traditional insurance coverage from an insurer, the entity sets aside its own funds to cover potential losses or liabilities that may occur. This approach reflects a conscious decision to manage and accept risk internally rather than transferring it to an insurance company.

In the context of surplus lines insurance, self-insurance becomes relevant when businesses or entities determine that their risk exposure is manageable without the need for external coverage or when they are seeking alternative ways to handle unique or non-standard risks that may not be adequately covered by conventional insurance products.

Thus, acknowledging self-insurance as an arrangement for assuming risk highlights its role in risk management strategies, especially for those who may find traditional market solutions unfit for their particular circumstances.