Self-insured retention (SIR)

Self-insured retention (SIR) is the amount of risk a contractor retains and must fund itself before insurance responds. Under an SIR, the contractor assumes financial responsibility up to a specified level and transfers the risk above that level to insurers.

The term appears in liability and risk-management guidance for procurement, including the CanadaBuys Buyer's Guide section on liability and risk management. It describes a contractor that keeps a defined layer of risk on its own balance sheet and insures only what lies above that layer.

How a self-insured retention differs from a deductible

An SIR is not necessarily the same as a deductible. The Government of Canada's guidance draws the line at who manages the risk. With an SIR, the contractor manages the retained risk through risk-control and self-funding measures. The retained layer is the contractor's own responsibility.

A deductible is commonly part of an insurance policy and is administered by the insurer. An insurer generally does not manage or pay claims that fall within an SIR. Under a deductible, the insurer is involved in handling the claim from the start. This is the practical difference a supplier should understand before it describes its insurance position in a bid.

Self-insurance and the retained layer

An SIR is closely related to self-insurance. The U.S. Federal Acquisition Regulation defines self-insurance as the contractor's assumption or retention of the risk of loss, whether voluntary or involuntary. That definition also states that self-insurance includes the deductible portion of purchased insurance. The full text is in FAR 2.101.

The U.S. rules also set conditions on contractors that rely on self-insurance. Under FAR Part 28, certain contractors using self-insurance for negotiated government contracts must submit information about the proposed program to the administrative contracting officer and obtain approval. A contractor seeking qualification for a self-insurance program must demonstrate that it can sustain the potential losses involved. These are U.S. federal requirements and do not apply to Canadian solicitations, but they show how buyers test whether a retained layer is backed by real financial capacity.

How CanadaBuys uses the concept

Public Services and Procurement Canada publishes the CanadaBuys Buyer's Guide. Its liability and risk management guidance uses the term "self-insured retention". It tells contracting authorities that a contractor may retain risk up to a defined amount and insure amounts above that level.

The guide presents the SIR as a risk-management concept for buyers to consider during planning. It does not establish that any particular department, program, solicitation or standard contract clause requires suppliers to carry an SIR. What a supplier must do depends on the insurance, indemnity and risk-allocation provisions in the specific solicitation and the resulting contract.

How other governments assess self-insured suppliers

UK government procurement guidance, set out in the risk allocation and pricing approaches guidance note, takes a similar view. Where a supplier self-insures, the contracting authority should satisfy itself that the supplier has sufficient resources to meet potential claims. The same guidance states that suppliers offering self-insurance should not be penalized solely for failing to provide a certificate of third-party insurance.

What it means for a supplier bidding on Canadian public contracts

Read the insurance and liability requirements of each solicitation closely, because they set the supplier's obligations. If your company retains risk up to a set level, be ready to explain how you fund and control that layer, since the retained risk is yours to manage and not the insurer's. Keep clear the difference between an SIR and a deductible when you describe coverage to a buyer or broker. Do not assume that an SIR is required or accepted on a given bid. Confirm it against the contract's insurance terms.