Corporate Insurance Make-or-Buy Under Binding Capital Constraints: Evidence from India’s Self-Insurance Market

Abstract This paper extends the theory of corporate insurance make-or-buy decisions to emerging markets with binding regulatory capital constraints, where discontinuous viability thresholds emerge from minimum capital requirements rather than traditional economies of scale. We develop a formal model where break-even points become step functions of regulatory parameters, investment returns, and medical trend rates, with comparative statics showing how capital requirements create discrete market segmentation. Using India’s INR 100 crore minimum capital requirement as our empirical laboratory, we demonstrate that regulatory constraints generate sharp discontinuities in corporate insurance choices, with implications for insurance market structure and policy design in emerging economies. Our analysis reveals that for corporations with employee populations above 1,000 and predictable claims experience, in-house programs achieve financial viability through elimination of insurer margins and investment income on reserves, provided strong claims governance and appropriate stop-loss coverage are maintained. Base-case break-even around 1,250 employees; 95% CI: 1,050–1,450. However, the current regulatory regime excludes medium-sized enterprises (400-1,000 employees) that would otherwise be viable candidates, creating a policy-relevant market gap. Tiered capital could unlock INR 60,000–67,500 crore in 10-year PV savings. The findings generalize to other emerging markets with similar capital-intensive regulatory frameworks, offering testable thresholds and actionable policy recommendations for regulatory reform