What’s The Difference Between a Deductible & Self-Insured Retention In Your Commercial General Liability Policy?

With respect to your commercial general liability insurance policy; choosing between a high deductible or self-insured retention can have a major impact on your competitive position as your business competes on the street. We we want to give you some direction BEFORE you pick the insurance program structure for your commercial general liability policy.

Difference Between Self-Insured Retention & Deductible When It Comes To Credit

The first is who is issuing your company “credit”. With a deductible, it’s the insurance company. When a claim needs to be paid out, it’s the insurance carrier that pays the full dollar amount; provided coverage was triggered. The insurance carrier then invoices your company for the agreed-upon deductible amount. Your client (if we are speaking about a liability policy ) is made whole. Thus it’s the insurance companies balance sheet that’s out front, not yours. This is important an important distinction.

With self-insured retention, it’s YOUR companies balance sheet that gets put out front. The reason being; if a claim is presented that needs to get funded YOUR COMPANY pays the claim (up to the retention limit) ; THEN the insurance carrier comes in & funds the remainder of the loss. The point being your customer is issuing you “credit” in hopes that you have the financial capacity to fund the loss.

Difference Between Self-Insured Retention & Deductible When It Comes To Infrastructure

The second big issue is one of infrastructure. When you purchase an insurance policy with a deductible all of the insurance carriers infra-structure comes with it. This may include insurance adjusters, legal representation, engineering & forensics, professional accident investigation e.t.c. An insurance policy that has a deductible structure includes the carrier’s infrastructure for you to leverage.

In a Self Insured retention structure, you must provide the infrastructure. Adjusters, Loss Control Engineers, Legal representation (defense), a professional accident investigation team. At Metropolitan Risk we have all of this pre-built for our clients that choose to leverage the self-insured retention advantage.

Check out our Vlog on Deductibles Vs. Self Insured Retentions

Which structure is best for you?

Too often we meet the executive team of a company that cannot articulate the strategy of how they ended up in a particular insurance program structure. These companies are backed into their insurance programs because the insurance is the cheapest quote they’ve received. We are brought in because their costs keep rising because they started with the wrong goal. Our clients understand the price they pay on their insurance program is a direct result of how they prevent and manage their claims.

If your main challenge is “frequency” we suggest the self insured retention model. The main reason, you have far more control with a self-insured retention. Since it’s your infrastructure, they work for YOU, not the carrier; it’s your money. Thus you have a degree of control and efficiency that you don’t with a high deductible program. Where we see this being the most successful is where there are a lot of small nuance claims, trip & falls as an example.

Insurance carriers are claims processing factories, they just can’t achieve the same results that our self-insured retention clients can because they handle too much volume to give these small claims the kind of attention they need. Thus our clients that adopt this structure significantly compress their claims.

Those that stay inside a deductible program, or worse a 1^st dollar plan (the carriers pay all claims from the first dollar). This is what we call the stealth commercial insurance squeeze. This is where the “incurred” claims continue to rise, resulting in commercial liability insurance premium increases! Remember; commercial insurance is essentially a really expensive credit line. The surcharges on these first dollar plans can result in a death spiral if you don’t take action.

A high deductible program works best in severity issues; (where you have 1 or 2 large claims in a policy year, think LABOR LAW!) No need to build out and pay for infrastructure; incurring those costs if you’re not going to materially impact the ultimate incurred loss which is key to achieving your goal. The more you positively impact your claims results the cost of the entire program reduces which is your goal.

Review your current loss history, run a loss pic, analyze what’s driving the results of your claim. Do you have a “frequency” issue or a “severity” issue? Once you understand your main challenge, then pick the correct insurance program structure to leverage. The best way to improve the results of your claims and lower the ultimate cost of your insurance program is to prevent the losses from happening in the first place.

 

Call a Risk Advisor today @ (914) 357-8444 or schedule a 10-minute call to walk through your challenge with our team.