The Confusing Part
Lower premium options look attractive when cash is tight.
Deductibles and retro plans are the common lever, but they add volatility.
How It Works
These plans reduce upfront premium by shifting claim cost back to you later.
For small firms, one bad year can wipe out several years of savings.
Where It Breaks Down
It stops working when claim volatility exceeds your cash reserves or line of credit.
The Tradeoffs
- Lower fixed premium, higher variable claim cost.
- More control, more downside in a bad year.
What Moves the Outcome
Risk Signals
- Claim frequency and severity
- Safety controls and supervision
Coverage Structure
- Deductible size and retro formulas
- Collateral and cash flow requirements
Market Context
- Appetite for small deductible programs
- Repricing after adverse development
Deeper context
For market context, see Loss Cycles: Why Construction Tightens First.
How to Decide
If you can fund bad years, consider it. If not, stay with fixed cost.
Minnesota note: claim patterns and contractor timelines vary by county, so Twin Cities experience isn’t always a perfect proxy for outstate Minnesota.