Resources & Insights

Managing Your Risk: Self-Insured Retentions vs. Deductibles

May 30, 2018

Andrew Mahoney,
Executive Vice President, Commercial

On the dance floor, it takes two to tango, if even one partner takes the lead.

It’s not a perfect analogy, but that’s the idea behind buying an insurance policy with what’s known as a self-insured retention, or SIR.

With a policy with a retention clause, you take the lead in paying a claim up to your retention limit. The insurance company steps in only after you’ve done that.

For example, assume two identical policies except that Policy A is written with a $25,000 deductible, while Policy B comes with a $25,000 self-insured retention. Now let’s assume that defense and indemnity costs for a claim total $100,000.

Under Policy A, the insurer pays the $100,000, then bills you for the $25,000 in payments it made on your behalf. Under Policy B, you pay the first $25,000 of defense and indemnity costs. The insurer then makes the additional $75,000 in defense and indemnity payments on your behalf.

Some insurers, although not all, like SIRs because they lower the risk they assume by placing a financial responsibility onto the buyer of the policy. That, in turn, is believed to help encourage safer behavior.

The amount of risk you might decide to “retain” depends on what you do. A publicly traded company might have directors and officers policies with self-insured retentions of $1 million or more. A small subcontractor may only want to carry a $10,000 retention.

Retentions vs. Deductibles

So, what are the pros and cons of one type of policy over the other? What, if any, advantages might accrue to a business owner should they opt to go the SIR route vs. sticking with the more traditional approach of a policy with a deductible?

First, you’re right if you were guessing that increasing the amount of your retention will help bring your insurance premium down. But that’s also true with deductibles. The higher they go, the lower your premium. Don’t forget, however, that higher retentions or deductibles just mean more out of your pocket when claims arise.

A retention, on the other hand, can mean fewer claims filed and help you keep your premiums lower. Why? Because if the amount of your claim is less than your retention amount, it makes sense to pay for the loss yourself rather than running it through your insurance company.

As a result, fewer claims get filed and processed. Processing notifications or claims takes time and money, even if the insurance company ultimately denies the claim. Reducing claims helps keep insurance costs down for everyone. But be careful, because breaking a notification requirement could lead to the denial of a claim.

You could, of course, do the same with a deductible. Because you know you’ll have to pay your deductible in case of a claim, it often makes good sense to dig into your pocket and, if possible, avoid filing a claim – assuming the damages involved don’t exceed your deductible.

There’s more to all of this; if you’d like to dig into the details, just reach out to us. We’re here to tackle any of the questions you might have.

Andrew Mahoney is CCIG’s Executive President of Commercial Lines. Reach him at or 720-330-7925.

CCIG is a Denver-area insurance brokerage with clients nationwide. We do more than make sure you have the right policy. We also help you manage your long-term cost of risk with our risk and claims management expertise and a commitment to service excellence.

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