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💰 '''Large deductible policy''' is a form of [[Definition:Insurance policy | insurance arrangement]] in which the [[Definition:Policyholder | policyholder]] retains a substantial portion of each loss through a high [[Definition:Deductible | deductible]] — often ranging from hundreds of thousands to several million dollars per occurrence — while the [[Definition:Insurer | insurer]] pays losses above that threshold and provides the full policy limit to [[Definition:Third-party claimant | third-party claimants]] or regulators when required. This structure is most common in [[Definition:Workers' compensation insurance | workers' compensation]], [[Definition:General liability insurance | general liability]], and [[Definition:Auto insurance | commercial auto]] lines, particularly in the United States, where it serves as a middle ground between fully insured coverage and a formal [[Definition:Self-insurance | self-insurance]] or [[Definition:Captive insurance | captive]] program. The insurer remains the policy issuer of record and handles [[Definition:Claims handling | claims administration]], but the policyholder reimburses the insurer for paid losses within the deductible layer.

🔄 The mechanics involve a careful interplay of cash flow, credit risk, and regulatory structure. Because the insurer pays claims in full — including the deductible portion — and then seeks reimbursement from the policyholder, the insurer bears [[Definition:Credit risk | credit risk]] on the deductible receivable. To mitigate this, insurers typically require the policyholder to post [[Definition:Collateral | collateral]] in the form of [[Definition:Letter of credit | letters of credit]], trust funds, or surety bonds. The [[Definition:Premium | premium]] charged reflects only the insurer's retained risk above the deductible plus administrative fees, making it significantly lower than a fully insured premium. [[Definition:Actuary | Actuaries]] must carefully model expected losses within and above the deductible layer, and accounting treatment can be complex — particularly around whether the deductible reimbursement obligation should be treated as [[Definition:Insurance risk transfer | risk transfer]] or a financing arrangement under [[Definition:US GAAP | US GAAP]] or [[Definition:IFRS 17 | IFRS 17]].

📊 For [[Definition:Large employer | large employers]] and corporations with sufficient financial strength to absorb high per-occurrence retentions, large deductible policies offer tangible advantages: lower upfront premium costs, direct incentive to invest in [[Definition:Loss control | loss control]] and [[Definition:Risk management | risk management]], and retention of [[Definition:Investment income | investment income]] on funds that would otherwise be paid to an insurer. The structure also allows the policyholder to satisfy statutory insurance requirements — such as proof of [[Definition:Workers' compensation insurance | workers' compensation]] coverage — without purchasing full first-dollar insurance. However, the approach demands sophisticated internal capabilities to manage claims, monitor aggregate exposures, and maintain adequate collateral. Regulators, particularly state insurance departments in the U.S., scrutinize large deductible programs to ensure that insurers maintain adequate [[Definition:Reserves | reserves]] for the gross liability and that collateral arrangements genuinely protect the insurer against policyholder default.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Self-insured retention (SIR)]]
* [[Definition:Captive insurance]]
* [[Definition:Deductible]]
* [[Definition:Workers' compensation insurance]]
* [[Definition:Collateral]]
* [[Definition:Risk retention]]
{{Div col end}}

Definition:Large deductible policy - Revision history

PlumBot: Bot: Creating new article from JSON