As we look ahead to 2020, insurance
retention amount. The carrier will then pay
buyers may want to consider alternatives
for all loss amounts that exceed the
to their insurance financing and risk
retention amount.
management approach by making use of loss sensitive programs. For the right customer, these programs can help mitigate rate fluctuations, improve risk management culture, and reduce costs.
What is a Loss-Sensitive Program? Traditional or guaranteed-cost insurance is
The insuring agreements, coverage terms, and exclusions typically remain the same, regardless of whether you choose a guaranteed cost or loss sensitive program. As your business grows, a risk versus reward analysis should be conducted to determine which program is right for your firm.
"first dollar" insurance, where the insured pays a fixed cost in the form of a premium and the insurance carrier pays for all claims and administrative costs thereafter (beginning at "first" dollar). A loss sensitive insurance program is a plan where the insurance cost will vary based upon the insured's own loss experience.
What Are My Options? Four Types of Loss Sensitive Programs 1. Large Deductible Plans These are most commonly used for a loss
For organizations with favorable loss
sensitive plan where the insured pays
experiences, a loss sensitive program
a reduced premium in exchange for a
provides an opportunity for significant
large deductible. The insurer pays for all
premium savings and lower total cost of risk.
claims within the deductible and seeks
But with that comes a risk of higher costs if
reimbursement from the insured for losses
the experience is worse than expected.
within the deductible plus claims-handling
In a loss sensitive program, the insured will pay a discounted fixed premium amount
fees. Collateral is used by the insurer as security for the unpaid losses.
in exchange for a higher retention, and will be responsible for all losses up to a certain
LOOKING AHEAD 2020 | WOODRUFF-SAWYER & CO.
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