September 26, 2022

R&W Insurance: A Claims Primer

RWI policies are different from other insurance policies in a number of ways, some of which can be very important to the claims process. Woodruff Sawyer recently began a series of blogs intended to serve as a primer on claims under these policies. This excerpt from the initial blog discusses some of the implications of the use of aggregate retentions in RWI policies:

Most insurance policies have either deductibles or self-insured retentions (SIRs), which work similarly. R&W policies have an aggregate SIR. Once the SIR has been exhausted by the insured’s payment of a covered loss, the policy will begin to pay out. An aggregate SIR means that all losses covered by the policy will serve to erode the retention that will apply to any future claims. If a retention is not aggregate but is instead a per-claim retention, the retention would separately apply to each claim noticed under the policy during the policy period. With aggregate retentions, there is no downside to reporting even the smallest claims.

Because of the aggregate nature of the retention, it is important to keep track of how much has been eroded by prior claims to carry it forward to any future claims. This practice is also very different from that of most other products — not only do most policies not have aggregate retentions, but the year-long effective period for most policies tends to eliminate the need to keep track of retention erosion.

John Jenkins