Commercial insurance is a lifeline for businesses, protecting them from unexpected financial losses due to various risks. According to a PR piece from Nationwide 40% of business fail to reopen following a disaster.
One key aspect of commercial insurance is the deductible, which can significantly impact the cost of claims. General rule of thumb is the higher the deductible the lower the monthly payment is. The challenge comes in when there a reason to file a claim and the insurance company says the repairs are less than the deductible, the policy holder is stuck paying for repairs out of pocket. Sometime this is not true and tactic insurance companies use to delay, deny and underpay claims. At the Voss Law Firm we are hearing these stories from business owners in recently affected areas, Waco, Midland, Odessa, Austin, DFW to name a few. As a business owner this will cause a cashflow challenge. Keep reading for a high level overview of high deductibles, their impact and managing them during the claims process.
Understanding Deductibles in Commercial Insurance
A deductible is the amount that a policyholder must pay out of pocket before their insurance coverage comes into play in the event of a claim. In the world of commercial insurance, deductibles work similarly to those in personal insurance, though the stakes may be much higher.
The Impact of High Deductibles
Many businesses opt for high deductible insurance policies as a way to reduce their premium costs. While this can be a cost-effective strategy, it means that when a claim occurs, the business is responsible for covering a larger portion of the loss. Here's how high deductibles can affect commercial insurance claims:
- Increased Financial Responsibility: High deductibles mean that businesses must shoulder a more substantial portion of the claim cost before the insurance company steps in. This can put added financial strain on the business, especially in the case of a significant loss.
- Lower Premiums: High deductible policies often come with lower monthly premiums. This cost-saving measure is appealing to businesses, but it can lead to larger immediate expenses when a claim arises.
- Risk Management: Businesses with high deductible policies must be diligent in managing risk and safety measures to reduce the likelihood of claims. Preventing claims can be more financially beneficial than dealing with high deductibles.
- Self-Insured Retention: Some commercial insurance policies with high deductibles might refer to the deductible as "self-insured retention." This terminology emphasizes that businesses are essentially covering a portion of the risk themselves before the insurance company becomes liable.
Managing High Deductibles in Commercial Insurance Claims
To effectively manage high deductibles in commercial insurance claims, businesses can consider the following strategies:
- Risk Mitigation: Prioritize risk management practices to reduce the frequency and severity of claims. This includes investing in safety measures, employee training, and preventative maintenance.
- Budgeting: Businesses should budget for potential claims and have financial reserves in place to cover their deductibles in case of a loss.
- Evaluate Deductible Levels: Periodically review your deductible amount to ensure it aligns with your financial capabilities and risk tolerance. Adjusting the deductible may help balance premium costs and potential claim expenses.
- Claims Management: Work closely with your insurance broker or agent to navigate the claims process effectively. They can provide valuable insights on claim handling and negotiation.
- Consider Alternative Risk Financing: Some businesses explore alternative risk financing methods, such as captive insurance companies or self-insurance, to gain more control over their insurance costs and claims management.
In conclusion high deductibles in commercial insurance claims can be a double-edged sword, offering potential cost savings through lower premiums while increasing the financial responsibility in case of a claim. Businesses must carefully assess their risk tolerance, financial preparedness, and overall insurance needs when choosing policies with high deductibles. Effectively managing high deductibles requires a combination of risk mitigation, financial planning, and expert guidance to ensure that the benefits outweigh the potential drawbacks.
At the Voss Law Firm, we strive to help get your business back to normal as fast as possible after an insurance denial or “lowball” offer. If you feel you have been unfairly treated by your insurance company, please call (888) 296-1986, input your information for a Free Claim Review, or chat with us today.