If a major haulage contractor wished to limit their cover to large claims and be its own insurer for small claims, what action may they take?

In this scenario, the major haulage contractor is looking to handle small claims independently while still retaining coverage for larger claims. By arranging for a deductible on their policy, they effectively set a threshold below which they will cover losses out of their own resources.

A deductible works by requiring the insured party to bear a certain amount of the loss before the insurance policy takes effect. This means that for any claim that falls below this deductible amount, the contractor would not make a claim on their insurance. As a result, they can manage their own smaller losses, which helps to limit their insurance coverage primarily to larger claims that may significantly impact their business.

This strategy can lead to lower insurance premiums since the insurer is covering fewer claims overall. It’s a common practice for businesses that are able to self-fund minor losses but still want the security of insurance for larger, potentially devastating claims.