Self-Insured Retentions (SIRs) and Deductibles serve a similar function but have very significant differences. Both require that the insured share some of the risk along with the insurance company and are there to make sure that the insured “has some skin in the game.” The larger the SIR or deductible, the greater amount of risk you are sharing.
A deductible requires the insured to pay the first level of expenses or damages, before the insurer is “on the hook.” In a business liability or workers compensation policies, deductibles range from nothing to $250,000 or more. The key to a deductible is that the insurer, not the insured, controls the investigation and the management of the claim. The insurer has the right to select counsel, and to make financial decisions on the policy. The insurer has the right and duty to perform the investigation and usually controls all settlement decisions.
Risk Retention Services works with some clients who have deductible policies. In these circumstances, RRS usually reports the claims to the insurer and acts as a liaison between the insured and the insurance companies in gathering information and performing other tasks necessary to defending a claim.
Similar to a deductible, a Self-Insured Retention (SIR) makes the insured responsible for the first layer of expenses or damages. Unlike a deductible, with an SIR, the insured, not the insurance company, is responsible for conducting the investigation, making the initial claim evaluation, and selecting counsel and professionals in defense of the claim, if needed.
For minor claims this distinction may be unimportant, but for larger ones such control may be crucial in establishing a strong defense. Depending on the size of the SIR, this means that a lawsuit can be ready for trial by the time the insurer is involved, and it becomes far more likely that the insurer will abide by the goals and wishes of the insured.
Generally, the insurer becomes actively involved in the claim only after the SIR has been exhausted. Insurance companies typically have offices and adjusters throughout the country with varying degrees of expertise and experience. They usually do not have the product and client knowledge of a TPA such as Risk Retention Services and frequently focus more on damages than liability.