Small Deductible Policies
Using small deductible policies can be a great cost-saving technique in some states. One of the long standing assumptions I had made was that small deductible policies really did not make that much of a difference to the cost of a Workers Comp policy. Small deductible policies had a deductible in my observations of $2,500 or less.
NCCI (National Council on Compensation Insurance) recently performed a study on small deductibles. They considered a small deductible to be $25,000 or less. I had not really considered a $25,000 deductible as small.
NCCI had split their analysis as:
- Small – $1 to $24,999
- Medium – $25,000 to $99,999
- Large – $100,000 and up
There are three main definitions that should be pointed out:
- Frequency- number of claims over a given time period
- Gross of claims- certain states do not allow the removal of the deductible when reporting values to NCCI or other rating bureaus for E-mod calculation
- Net of claims – certain states allow the removal of the deductible when reporting values
One would have to conclude the net of claim states would actually have more of a benefit that the states with gross of claims. The gross of claims states indirectly devalue the effect of having a small deductible.
The three main conclusions drawn by NCCI were:
- As expected employers with high frequencies chose small deductibles – or did the carrier force the higher risk employer to take a deductible before they would cover their business or organization?
- Contractors and employers in the most hazardous group (Group G) selected small deductibles more often than other industries or as in #1, did the carriers require the employer to have some type of deductible before being underwritten?
- A significantly greater number of employers select small deductibles in states that mandate the use of losses net of the deductible than states that mandate the use of losses gross of the deductible.
Conclusion #3 makes great sense as the employer would want the deductible amounts taken out of the E-Mod calculation. This would seem to be a very large incentive.
The net of deducible states are:
- Alabama
- Colorado
- Georgia
- Hawaii
- Idaho
- Iowa
- Kansas
- Kentucky
- Maine
- Missouri
- New Mexico
- Oklahoma
- Oregon
- South Carolina
- South Dakota
The gross of deducible states are:
- Alaska
- Arizona
- Arkansas
- Connecticut
- District of Columbia
- Florida
- Illinois
- Indiana
- Louisiana
- Maryland
- Mississippi
- Montana
- Nebraska
- Nevada
- New Hampshire
- North Carolina
- Rhode Island
- Tennessee
- Texas- with exceptions
- Utah
- Vermont
- Virginia
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