Self-Insurance Reserve Calculator

How it is calculated

The reserve is the expected loss over a number of years plus a percentage cushion: base = annual risk cost × years, buffer = base × buffer % ÷ 100, reserve = base + buffer. Annual risk cost is the average yearly loss you expect from the risk, in dollars. Years is how many years of losses the fund should cover, and it can be a fraction such as 2.5. Buffer % is the safety margin as a percentage, so type 20 for 20%. The tool shows the reserve, the base total and the buffer amount separately. None of the three inputs may be negative or empty. Zero is accepted and gives a zero reserve. The tool does not discount for interest earned on the fund or model claim variability.

Common mistakes

• Entering the cost of one bad year as the annual figure. The first field is the average yearly loss; the buffer is what covers the bad years.
• Typing the buffer as a decimal (0.2) when the field expects a percentage. That would be read as 0.2%, not 20%.
• Leaving years at 1 and treating the answer as a multi-year fund. The reserve scales directly with the years entered.
• Using a premium quote as the annual risk cost. Premiums include insurer expenses and profit; use the expected claims instead.
• Forgetting that a flat percentage buffer is not a statistical measure. Volatile risks may need a much larger cushion than 20%.