A Workers’ Compensation large deductible plan provides the same coverage as a guaranteed insurance plan – in fact, it is a guaranteed insurance plan with a special deductible endorsement. The deductible size for these plans generally ranges from $100,000 to $1,000,000 per occurrence.
Large deductible plans are not for every company, but some buyers would benefit from this policy approach. Here are a few company characteristics that would make an ideal candidate:
- Annual Workers’ Compensation premiums are in excess of $500,000
- Account has predictable claims frequency vs. unpredictable claims severity
- Good Workers’ Compensation experience
- Organizational commitment to workplace safety
- Solid balance sheet
- Well-staffed back office
- An appetite for and understanding of inherent risks
Determining a good fit for a large deductible plan is not about the class of business; rather it is about the company’s safety culture, financial wellbeing and understanding of the ramifications of taking on risks. When you get into larger accounts, it becomes more of a financial transaction than an insurance transaction. There is a lot of risk on the line – which is all the more reason to work with a specialized broker that understands these unique risks.
Let’s review some of the advantages this plan would provide your clients:
- Significant cash flow advantage over most other programs
- Increased market capacity for difficult risks
- Increased incentive to implement loss control programs
- Increased incentive to implement return to work programs
- Easy access and exit
- Possible tax savings
- Possible Residual Market Load (RML) savings
These are also possible disadvantages to this plan approach:
- Financial security is required (a letter of credit impacts your company’s borrowing power)
- Several years of deductible policies could aggregate collateral to the point that it depletes line of credit availability
- Unpredictable timing of claims reimbursement
- Risk of large, unpredictable losses – particularly if no aggregate deductible applies
If structured and monitored correctly, a large deductible program can give a company greater control, reduced long-term total cost and a significant competitive market advantage over its competitors. However, they must take a calculated risk that their loss control and claims management efforts will meet or exceed their historical loss experience and outperform similar companies in their industry. The expectation is that the insurance premium saved by choosing a higher deductible will exceed the claims cost in a given year.
Risk Innovations specializes in Workers’ Compensation and has underwriting experts with careers worth of experience with large deductible plans. So much risk is on the line for companies that elect these plans – and it is imperative that their operation be fully vetted and analyzed by a Workers’ Compensation expert. If you are uncertain if this plan is right for your commercial client, call us. We know what to do!