What is the Difference Between a Deductible and a SIR?

Many people that have liability insurance for their business may not even know the difference between a deductible or self insured retention.   For the most part, they serve the same purpose.  They can offer a cost savings to an insured who anticipates small and infrequent losses, and they can reduce an insurer’s reluctance to write an account with a loss frequency problem.


The fundamental difference between a deductible and a SIR is how the claims are adjusted. With a deductible approach, the insurer adjusts all claims, and then bills the insured for his deductible amount. With an SIR approach, the insured is responsible himself for adjusting claims up to his SIR, which means that the insured will probably require the services of a third-party administrator (TPA). After the SIR is consumed, then the insurance carrier is brought in to handle the remaining amounts of the claim.  Not only do deductibles and SIRs differ in claims adjustment approach, but they also affect risk management styles.

The problem I have seen businesses of all sizes get into is when they decide they want to go with a high deductible or a high SIR to save money.  When inexperienced managers or owners decide this prior to calculating if they can actually sustain paying out those amounts to the insurance companies, it can be detrimental to the business itself.  Regardless of whether you have a deductible or SIR, you are still obligated to pay the insurance company.

Think wisely before choosing a high deductible or high SIR plan.  Speak to your insurance broker about the positive and negative affects it could have on your business and your insurance program.  And remember, just because your premium is lower, doesn't mean you'll end up paying less in the long run.