What is meant by "self-insured retention" in surplus lines policies?

Self-insured retention refers to the amount of loss that an insured must cover before the insurance policy begins to pay for covered claims. It acts similarly to a deductible, but instead of being an out-of-pocket expense that a policyholder pays each time a claim is made, self-insured retention is typically a more significant amount that must be satisfied before the insurer steps in to cover any additional losses. This mechanism often applies in high-risk environments or specific types of insurance like surplus lines, where insurers might require the insured to take on more initial risk.

This term emphasizes the responsibility of the insured to manage certain levels of risk independently before turning to their insurance coverage. The other concepts, such as the total amount the insurer will cover, the reserves retained by a company, or the calculation of insurance premiums, do not specifically capture the nature or implications of self-insured retention. Hence, recognizing self-insured retention as a threshold level of costs borne by the insured is critical in understanding the mechanics of surplus lines policies.