2012Legal / Business Practices forum
Self-insuring equipment by accumulating deductible amounts in savings accounts as an alternative to traditional insurance
14 years old. Gear and prices may have changed since.
DisputedParticipants disagreed and reached no conclusion. Read the findings as positions, not as an answer.
What the thread found
- Building a dedicated savings account equal to insurance deductibles over many years can create a fund capable of covering most equipment losses without insurance premiums.
- A hybrid approach of gradually increasing insurance deductibles as savings grow allows operators to maintain catastrophic loss coverage while reducing premium payments.
- Self-insurance makes sense primarily for operators with smaller rigs under $5,000-$10,000 or those whose equipment investment is modest relative to their income.
- Liability insurance and production insurance coverage remain important and necessary regardless of equipment self-insurance strategy.
- Selective insuring of major items like the main rig and accessories while self-covering small replaceable items can reduce overall insurance costs.
- A cooperative self-insurance arrangement among multiple operators in different regions could reduce costs by eliminating middleman expenses, though this requires careful partner selection and legal agreements.
- Self-insurance provides greater financial flexibility during delayed reimbursement scenarios, such as waiting months for production company claim payouts.
Depends on
- The approach works only if no total loss occurs during the initial accumulation period, which represents significant risk in early years.
- Major losses like vehicle fires or home fires could exceed accumulated savings and require insurance coverage.
- Liability insurance cannot be self-insured and must be maintained separately for legal and contractual requirements.
- Insurance company deductible limits typically cap at $5,000, constraining the hybrid deductible increase strategy.
- The strategy requires disciplined savings habits and assumes accumulated funds remain untouched for emergencies.
- Cooperative self-insurance models require reliable partners with compatible risk profiles and formal dissolution agreements.