Approaching a Prospect that has a Large Deductible Workers Compensation Policy

Timothy L. Coomer, Ph.D.

I am fortunate to have the opportunity to meet with Powered by SIGMA brokers on a weekly basis as I travel around the country.  My goal is always to make sure I understand the challenges facing PBS brokers and how SIGMA and the PBS resources might best support our PBS members.

Topics that are discussed in these meetings come in waves.  Last year, there were a lot of questions about captives and we addressed that topic with a great interview with Jim Girardin at Ameythst (  We also developed a captive assessment tool (

Recently, the theme of my meetings concerns how to approach larger prospects with more sophisticated loss financing programs.  From these conversations, I have discovered there is a “sweet spot” with prospects that are relatively new to the world of large deductible programs. Most companies, as they grow, are eventually presented with an option other than the guaranteed cost plan.  Usually, at this stage of growing sophistication, the options are fairly simple: continue with guaranteed cost or step up to the large deductible.  There is usually not any analysis that backs up this decision.  It is an emotional decision to take on more responsibility and more risk in hopes of gaining some control over costs and, whether or not this is verbalized, lowering the Total Cost of Risk.

Large Deductible Graphic
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Once a large client has made the switch to a large deductible program, the current broker on such an account is not going to “rock the boat” at renewal time and will typically present the same deductible option if things are going well.  This is where you have an opportunity to approach the prospect with the thought that they are now ready to undertake a level of sophistication in their decision making that matches the level to which their organization has grown.  Deductible levels should be chosen based on sound analytics.  This is an area where you, as a PBS broker, are particularly well equipped.

We suggest you approach the prospect with the following plan:

Utilize your actuarial resource (SIGMA) to complete an analysis that will do the following:

  1. Determine the deductible level that minimizes the Total Cost of Risk.  This will require you to get several deductible quotes at different retention levels.  This combined with SIGMA’s forecast of losses in the various retention layers will allow you to help your new client select an appropriate deductible level designed to minimize the Total Cost of Risk.
  2. Determine fully funded loss reserves for financial statement purposes.  It is common that these liabilities are underestimated.  Having appropriate loss reserves will prevent unanticipated adjustments to financial statements in the future and also is critical if the organization is acquired at some point down the road.
  3. Determine the timing of cash flow for the claim payments the organization is responsible for.  This will assist the CFO in financial planning and budgeting.
  4. Estimate the losses that will occur in the self-insured layer.
  5. Support negotiations to minimize collateral requirements.  Ideally, the mechanism or formula for determining collateral requirements is negotiated and defined before the policy is implemented.  Unfortunately, that does not always happen and therefore SIGMA frequently is engaged to help negotiate appropriate (lower) collateral requirements for many clients.

If you would like to discuss this concept further or have a prospect that you believe this approach would be effective for, please email or call and we can set up a time to discuss in more detail.

One of the aspects of Powered by SIGMA that we are enjoying the most is the opportunity to get on the phone and brainstorm with our PBS brokers about opportunities and challenges they face in their business.  If you are not yet registered as a PBS brokers (its Free!) then please do so today at

As always, please comment or email us your thoughts and comments to

© 2013 SIGMA Actuarial Consulting Group, Inc.

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