Your clients might think they’re saving money by taking on higher deductibles to lower their insurance premiums. But then renewal season hits, and bam, the premium still goes up. Now, your client is stuck paying a high deductible and a higher premium. No wonder they feel like they’re self-insuring without getting the benefits.
You’re not the only one to hear this from clients. Plenty of independent agents working with middle-market businesses are running into the same headache.
At Captive Coalition, we’ve seen this story play out hundreds of times. Many of the agents we work with have clients who’ve been through the same frustration: higher deductibles, only to get hammered with premium increases anyway. For some, their clients’ premiums nearly doubled.
In this article, you’ll learn why premiums increase even when your client takes on a higher deductible and how to give them alternative strategies to gain control over their insurance costs without the frustration.
Why Are Your Clients Paying Higher Deductibles and Higher Premiums?
When your client opts for a higher deductible, they’re agreeing to take on more risk for each claim. In theory, this should lower the premium. But instead, insurers are still jacking up rates, leaving your client wondering, “What’s the point?”
Here’s the reality you need to explain to them: the insurer isn’t just looking at your client; they’re looking at the entire national market. Even if your client’s loss history is clean, other businesses in the same industry might be racking up claims. The insurer responds by increasing premiums across the board, no matter how responsible your client is.
For example, let’s say your client is a roofer in South Carolina. They might never have filed a claim, but if wildfires in California result in massive claims for roofers out there, your client’s insurer still needs to recover those losses. And your client ends up footing part of the bill.
Line of Business vs. Class of Business. Why It Matters to Your Clients.
To understand why your client’s premiums are increasing despite taking on more risk, you need to explain how insurers categorize risk. Two major factors come into play: line of business and class of business.
Line of Business
This refers to broad industry categories like construction, manufacturing, or retail. If a specific industry is trending poorly nationwide (high claims, heavy losses), insurers adjust rates across the board.
Class of Business
This drills down further. Within construction, for example, a roofer faces different risks than an excavation contractor. If that specific class has a history of frequent or severe claims, insurers charge more, regardless of how good your client’s safety record is.
Even if your client is doing everything right, they’re still priced based on the behavior of others in their line and class.
How Lines and Classes of Business Impact Your Client’s Premiums
Insurers set rates based on aggregated data from both the line (broad industry) and class (specific operation) of business.
If construction as a whole is having bad years, rates go up for everyone in that line. If roofers, specifically, are generating high claims frequency or severity, expect the class of business to drive rates up even further, whether your client is part of the problem or not.
This explains why many clients feel penalized for others' mistakes. The insurer is setting premiums based on trends, not individual performance.
Is Your Client Better Off Self-Insuring?
When clients are hit with rising premiums and higher deductibles, you and your clients might want to consider other strategies. That doesn’t mean they need to go fully self-insured, but they need options that give them more control.
Start by asking:
- Can your client switch to a carrier that allows higher deductibles with real premium savings?
- Would a retrospective rating plan (retro plan) make sense, where they’re essentially betting on their loss history?
- Should they consider exiting the traditional market entirely and entering a captive?
Captives allow your client to take more control, pool risk with like-minded businesses, and potentially profit from strong risk performance. Depending on their needs, they could join a group captive or establish a single-parent captive.
Is Your Client Better Off Self-Insuring? What Are the Options?
If your client is dealing with both rising premiums and a high deductible, it’s time to consider whether the current structure still works. They may not be ready to fully self-insure, but they do have other options that put more control in their hands and reduce long-term costs.
They could switch carriers and negotiate a higher deductible with a lower premium. That’s a short-term fix and still gives the carrier control.
Depending on the client’s industry, a retrospective plan might make sense. These are structured like a bet: the client pays an estimated premium upfront, and the final number gets settled based on actual claims. If losses are low, they get a refund. If they’re high, they pay more.
Another alternative? Take the insurance carrier out of the equation. If your client is risk- and safety-conscious, a captive insurer may be a better fit. With captives, they take on more risk, but they also gain more control and can even turn a profit by keeping claims low. Read about the differences between traditional and captive insurance.
Whether it’s through a group captive or a single-parent model, the common thread is this: if your client is already carrying a high deductible, they’re halfway to thinking like a captive owner.
Consider Captive Insurers as an Option for Your Clients
Many agents we work with have helped clients escape the trap of rising premiums and high deductibles by introducing them to captive insurance. Captives are a viable path, but only for businesses willing to prioritize safety and risk management.
Captives aren’t for everyone, but for the right client, they offer control, stability, and long-term financial advantages. If your client is carrying a high deductible today, they’re already partway there.
Next, make sure you read our article on the Financial Pros and Cons of Captive Insurance so you can confidently talk to your clients about potentially going the captive route.
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