If you impose a deductible on an insurance policy that you’ve written, what fraction of expected losses do you eliminate from your expected liability? This is measured by the Loss Elimination Ratio .
- Ordinary deductible — The payment made by the writer of the policy is the loss minus the deductible . If the loss is less than , then nothing is paid.
- Franchise deductible — The payment made by the writer of the policy is the complete amount of the loss if is greater than .