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🔑 '''Franchise deductible''' is a type of [[Definition:Deductible | deductible]] provision in an [[Definition:Insurance policy | insurance]] or [[Definition:Reinsurance | reinsurance]] contract under which no payment is made if a [[Definition:Loss | loss]] falls below a specified threshold, but once the loss equals or exceeds that threshold, the [[Definition:Insurance carrier | insurer]] pays the entire claim from the first dollar — not merely the excess above the deductible amount. This distinguishes a franchise deductible from a standard deductible (sometimes called a straight deductible), where the insured always bears the deductible portion regardless of loss size. The franchise mechanism is widely used in both direct insurance and reinsurance markets globally, with particular prevalence in [[Definition:Marine insurance | marine]], [[Definition:Cargo insurance | cargo]], and [[Definition:Catastrophe reinsurance | catastrophe reinsurance]] placements.

⚙️ Consider a marine cargo policy with a franchise deductible of $25,000. If a shipment suffers damage valued at $20,000, the insurer pays nothing — the loss falls below the franchise threshold. However, if the damage totals $25,000 or more, the insurer covers the full amount from dollar one. This binary, all-or-nothing trigger eliminates the administrative cost of handling small claims while ensuring that meaningful losses receive complete indemnification. In [[Definition:Excess of loss reinsurance | excess-of-loss reinsurance]], franchise deductibles can appear as attachment triggers: a [[Definition:Cedant | cedant's]] aggregate losses must reach the franchise level before the reinsurance layer responds, but once triggered, the reinsurer covers losses from the first dollar within the layer. [[Definition:Policy wording | Policy wordings]] must specify clearly whether the franchise applies per occurrence, per item, or on an aggregate basis, as ambiguity can generate disputes.

📐 The strategic value of a franchise deductible lies in its ability to filter out nuisance claims without penalising the insured on larger, more consequential losses. For [[Definition:Underwriter | underwriters]], it reduces [[Definition:Claims handling | claims frequency]] and the associated expense load, which can be reflected in lower [[Definition:Premium | premiums]] compared to equivalent policies with no deductible at all. For policyholders, the trade-off is accepting full exposure to losses below the threshold in exchange for more complete recovery when losses are significant. Market conventions around franchise deductibles vary: they remain a standard feature in London and international marine markets, appear frequently in European [[Definition:Property insurance | property]] catastrophe reinsurance, and are less common in personal lines, where straight deductibles dominate. As always, the specific terms — including whether the franchise is expressed as a monetary amount or a percentage of [[Definition:Sum insured | sum insured]] — are negotiated between the parties and must be clearly documented.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Deductible]]
* [[Definition:Self-insured retention (SIR)]]
* [[Definition:Aggregate deductible]]
* [[Definition:Excess of loss reinsurance]]
* [[Definition:Marine insurance]]
* [[Definition:Attachment point]]
{{Div col end}}

Definition:Franchise deductible - Revision history

PlumBot: Bot: Creating new article from JSON