Deductible Reduction Incentive Provisions
Definition
Deductible Reduction Incentive Provisions — provisions sometimes included within professional liability policy forms that,
under certain conditions, reduce the policy's deductible, typically by 50
percent, if certain conditions are met. Typical criteria that must be met by
the insured are to: (1) report the "incident" to the insurer before
the incident becomes a formal claim; (2) use a standard engagement letter for
all client projects; (3) agree to settle the claim based on the insurer's
recommendation, within 1 year after the claim was made against the insured; or
(4) obtain a written agreement with all clients, under which clients consent to
mediate or arbitrate—rather than litigate—claims against the insured
professional. Insurers offer such provisions because when the insured takes
these kinds of actions, both indemnity and defense costs are generally much
lower than would otherwise be the case.