For employers looking at alternatives to traditional insurance programs and the cost of financing risk, large deductible programs should be included in the discussion. Large deductible insurance programs are designed for medium to large employers and typically cover casualty insurance lines such as workers’ compensation, commercial auto and general liability. Generally speaking, the deductibles vary from between $100,000 to $1 million per claim. The policies are designed so that the insurer assumes full statutory liability for all coverage under the policy terms while the insured assumes a contractual obligation to reimburse the insurer for any claims paid under the deductible.

The two most common types of large deductible programs are insurer-funded and policyholder- funded. The insurer-funded program is set up so that the insurer will pay all claims within the deductible and then bill the insured for the reimbursement. The policyholder-funded program allows the insured to fund its own claims within the deductible by providing funds to a third party administrator (TPA) who then administers the claim(s).

By implementing a large deductible program, an organization is taking a calculated risk that their loss control and claims management efforts are going to meet or exceed their historical loss experience and outperform similar companies in their respective industry. The expectation is that the insurance premium saved by choosing a higher deductible will exceed that of the claims cost in a given policy year. With this in mind, a company will develop annual operating budgets that project the direct and allocated costs of its expected claims, including excess insurance. However, what is often overlooked in this analysis is the cost of collateral that will be required by either insurer-funded or policyholder-funded large deductible programs.

Please contact your WGBCO representative today to determine if a large deductible program is a good fit for your company and its insurance funding needs.