How does the Performance Based Insurance (PBI) model differ from the Subsidy Based Insurance (traditional insurance) model? The Performance Based Insurance model requires little or no subsidy to the insurance carrier – it works like this. All companies pay a fixed premium that’s used to run an insurance company. Every insurance company works like this, whether it’s a national carrier, a dedicated mini-insurance company formed to partially self insure, or a small insurance company created with fellow business owners. This part of the premium averages about 30% of the total amount of the premium paid to a traditional insurance carrier. With subsidy based insurance models (traditional insurance), companies then add additional premium dollars to cover their potential losses, plus dollars to subsidize other companies’ losses (some of these companies might even be competitors).
When utilizing the Performance Based Insurance model companies pay their own losses up to a point that works for them financially, and then transfer the riskier and more expensive losses to an insurance company (this might be a captive or group captive). Safety driven companies can save 25% to 50% on their current insurance expenditures.