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Deductible Reduction Incentive Provisions

Deductible Reduction Incentive Provisions

Definition

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.

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