A self-insured retention is the part of a covered loss the insured handles on its own before the insurer gets involved. The insured pays the claim and usually its own defense costs up to the retention amount. Only after the retention is used up does the policy respond.
SIR vs. deductible
| Deductible | Self-insured retention | |
|---|---|---|
| Who handles the claim first | The insurer | The insured |
| Who pays first | The insurer, then bills the insured back | The insured |
| Defense costs | Usually handled by the insurer | Usually count toward the SIR and are paid by the insured |
| Does it reduce the limit? | Sometimes | Usually not; the limit sits on top |
| Common on | Property, auto, smaller liability | Umbrellas, E&S liability, larger accounts |
In practice, policies blend these features, so read the actual wording.
How it shows up in an agency
Umbrellas. A commercial umbrella has a $10,000 SIR. A claim that’s excluded on the underlying GL but covered by the umbrella’s broader terms “drops down” to the umbrella. The client pays the first $10,000 before the umbrella pays. See umbrella vs. excess.
E&S general liability. A contractor’s E&S GL policy has a $25,000 SIR per occurrence. When a homeowner sues over water damage, the contractor must fund the defense lawyer until the SIR is used up. A small business may not have the cash or claims know-how for that, and the producer should explain it before binding.
Common confusion
- Additional insureds. Some SIR wording says only the named insured can satisfy the retention. If the named insured goes bankrupt, additional insureds may not be able to access coverage. Check for contracts that limit SIRs.
- Quote comparisons. A cheaper E&S GL quote with a $25,000 SIR isn’t comparable to an admitted quote with no deductible. Normalize before presenting.
- Claims reporting. Many SIR policies still require prompt notice of claims that might exceed the retention.