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Insurance - Consider a workers’ compensation deductible

image Wes Pitts, Sr. V.P. and Southwest Regional Construction Practice Leader, USI Southwest, Austin, TX

AUSTIN - Have you seen your Auto rates steadily increasing over the last several years? You are not alone, it’s happening on all commercial insurance accounts across the board regardless of your own individual account’s auto experience – an 8% bump, 10% bump, even 15% or more are becoming more and more common!




        I want to point out that there are some carriers out there, yes including the market leader in Texas, that are offering some pretty darn attractive deductible credits these days.  First off keep in mind this is not a “one size fits all” approach.  Generally, to consider a deductible you need to have a somewhat sizeable WC premium, excellent controls and claims management, at least 5 years of experience to back that up, and the ability to post some security collateral.  We generally like to look at a minimum $25,000. per person/claim deductible with No Aggregate (i.e. no agg. cap on the no. of deductibles you could have to pay for) because of the deeper credit this brings, which can be close to -25%.  If interested, the first thing that needs to happen is your agent needs to conduct an analysis of what it would have looked like at least over the last 5-years of your WC experience – this is really nothing more than a spreadsheet that captures the term, losses under and over, the estimated premium savings, and the differential.  If that differential is largely in the black over the term, then it may make sense for you.  If the trigger is pulled, you’ll want to place even more emphasis on safety, policies, controls and probably most importantly having a dedicated person on claims management, which we addressed back in the Oct. issue.  The collateral could be $50,000., $75,000., $100,000., and generally in a combination of about 70% Irrevocable Letter of Credit (ILOC) and balance in cash, with the amount depending on your payment history, credit history, loss pick and credit on the pick.  This collateral is not a working collateral – claims are not paid from it, but rather you would reimburse the Company for claims on a monthly invoiced basis.  You’d also want to know going in that because it often takes several years for some claims to be paid and closed, you will continue to be responsible for reimbursing the Company for claims the Company has paid until all claims within your deductible are paid and then closed.  Accordingly, the Company will maintain the Escrow Account established by the Deductible Escrow and Security Agreement after the expiration of the policy.
    As you grow and try to manage your costs, it is always a good idea to look at all alternative funding arrangements for your insurance program, have your agent help you to learn and understand them, and then you can jump onboard if it makes sense for your company.      

Wes Pitts is a Sr. Vice President and Southwest Regional Construction Practice Leader for USI Southwest - Austin, TX.  512-651-4107, or Wesley.pitts@usi.com

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