What's the difference between a large deductible program and guaranteed cost insurance?
Commercial insurance broker
The main difference is who pays for losses within a set amount. With guaranteed cost insurance, you pay a fixed premium and the insurer pays covered claims, aside from any small deductible. With a large deductible program, you take on responsibility for losses up to a significant per-claim deductible in exchange for a lower premium.
Guaranteed cost is predictable. Your cost for the year is largely known up front, and a bad loss year doesn't directly increase what you pay that year, although it will affect future renewals. It's often the right fit for smaller or growing companies, or those that want budget certainty.
Large deductible programs give you more control and the potential for real savings when your losses are well managed. You keep more of the premium dollars that would otherwise go to the insurer for predictable, smaller claims. The tradeoffs are volatility and collateral. A bad year costs you directly, and insurers usually require collateral, such as a letter of credit, to secure your deductible obligations. You also need the financial strength and claims management discipline to handle the program.
Large deductibles are common in workers' compensation and auto liability for mid-market and larger fleets. Whether one makes sense depends on your loss history, financial position, cash flow, safety culture, and appetite for risk. It's worth modeling both options over several years rather than comparing a single year's premium.