Staffing companies are increasingly moving from traditional guaranteed cost workers’ compensation (WC) programs to large deductible structures. The main reason for this shift is the potential for significant premium savings as WC costs rise. However, like any insurance plan, there are both pros and cons. This guide will help you decide if a large deductible program is right for your staffing organization and to ensure a smooth transition if you make the switch.
Is a large deductible program right for you?
A large deductible program typically becomes beneficial when a company pays $750,000 or more in standard premiums. This threshold is common because, at larger scales, a carrier’s administrative costs don’t align directly with the size of an insured’s program. For your company to benefit fully, your WC program must be large enough to offset these costs.
Understanding financial security requirement
When you choose a large deductible program, you take on more risk by covering claims within your deductible. However, the carrier still guarantees the payment of all claims, creating a credit risk. To mitigate this, carriers usually require financial security, often in the form of a letter of credit, which can limit your borrowing capacity. This collateral requirement may stack over time, making it harder to change carriers or program structures.
Consistency in loss history
A key factor in choosing a large deductible program is the consistency of your historical losses. If your loss history fluctuates significantly, it can be tough to budget for claims within your deductible. Additionally, large claim variations can make it difficult to choose the right deductible level for your risk profile.
Implementing a strong safety program can help stabilize these fluctuations, allowing you to save money that can be reinvested in your business. A safer work environment also boosts employee productivity, especially when employees are involved in managing their safety. In a large deductible program, the effort spent on safety pays off over time.
Advantages of switching to a large deductible Program
- Reduced fixed costs: Lowering fixed costs paid to your insurance carrier improves cash flow.
- Rewarding good loss years: Fewer claims result in more funds available for business growth.
- Increased carrier interest: Sharing risk makes carriers more willing to quote, increasing your buying power.
- Customizable claims services: Many carriers allow you to unbundle claims services, giving you more control over your servicing needs.
A well-structured large deductible plan can significantly reduce your total cost of risk, which is the ultimate goal of any risk transfer program.
At Marsh McLennan Agency (MMA), we have the expertise to help you determine the best plan for your staffing company. Choosing the right program can be complex and risky, but it’s what we do best. Contact us to work with an MMA Advisor to determine if a large deductible worker’s compensation program is right for your business.
