Video Transcript

Hi folks, This is a very basic example of the difference between a deductible and self-insured retention. The goal is to introduce the topic and the subject matter so you can organize it and understand and process how to position this within your own insurance program.

(Video Introduction)

In this particular example, we’ve got a $675,000 general liability claim. Different claims are handled a little differently but the overriding components are the same

So $675k and that is with the incurred valuation is. They haven’t paid this out. They’ve just reserved it. An incurred loss usually has a liability claim and two components to it. An expense component and then the expected payout. This particular example is $675k, You’ve got $75,000 for expenses and what they potentially think they’re on the hook for which is $600,000.

In this situation, if you have a deductible the carrier is basically on the hook for the entire $675,000, from the first dollar and the carrier is going to bundle all of the services you get when you buy an insurance policy.

So when you buy an insurance policy, they’re not just promising to fund the loss. There is a whole infrastructure behind the insurance carrier. When you buy insurance from them, you’re actually getting all of that infrastructure with the insurance policy.

It could be defense, legal comes with it. They have adjusters which help set the reserves. The adjuster will help coordinate different resources and assign counsel and help adjust the loss. With the ultimate goal to close the claim out for the least amount of dollars possible.

Self Insured Retention

When you do a self insured retention, you’re going to fund the first $100,000 of a loss but you’re also going to go out and hire a TPA, a third party administrator to adjust, handle and track the claims and you’ll also retain your own legal counsel.

The legal counsel and the TPA manage the claim and all of the smaller incidents up to $100k and the insurance carrier that you ultimately buy an insurance policy from funds the losses above $100k. Would basically cut you a deal and say “Once claims rise to a certain level you guys need to notify us, so we can mirror and make sure there is a pretty smooth transitional handoff from “here to here”. We’ll take it over from there.

It depends on how you structure the deal. A lot of these deals are very different. The point I really want to get across to you is in a deductible situation all of these services are bundled in with the policy. Here they are unbundled and you have to plug in your legal counsel and your TPA.