Final answer:
A large manufacturer might self-insure to save on premiums and control costs, manage risks internally, and not necessarily to evade taxes or laws. This decision must balance with the regulatory environment and the need for sustainable premium setting by insurance companies.
Step-by-step explanation:
A large manufacturer may choose to self-insure rather than buy an insurance policy for several reasons. One main reason is to save insurance premiums by paying for minor losses out of their own funds, allowing them to directly control costs and potentially save money in the long term. Furthermore, self-insurance can be a strategic financial decision, allowing the company to manage risks internally and make decisions on which losses to cover based on their financial capabilities and risk appetite. However, it is not primarily for sheltering cash from federal taxation, avoiding compliance with state insurance laws, or to selectively pick and choose which losses they cover as these actions can have legal and regulatory implications.
Insurance companies leverage their large client base to negotiate lower rates with service providers, increasing benefits for the insured while also saving on claim payouts. Yet, government regulations prevent insurers from setting premiums too low and taking unsustainable losses. If premiums do not match the risk, it may burden taxpayers or other insurance buyers, presenting a complex balance within the insurance market.