Franchise Deductible

A franchise deductible is a distinctive policy mechanism used in Indian commercial insurance -- particularly in marine and property lines -- that differs fundamentally from a standard excess or deductible. Under a franchise arrangement, if the loss amount falls below the specified franchise threshold, the insured bears the entire loss and no claim is payable. However, once the loss equals or exceeds the franchise amount, the insurer becomes liable for the full claim amount without subtracting the franchise. This is in contrast to an ordinary deductible, where the specified amount is always subtracted from every claim regardless of size.

In Indian marine insurance, franchise deductibles are commonly expressed as a percentage of the sum insured or as an absolute rupee amount. For instance, a marine cargo policy might carry a franchise of INR 25,000 -- meaning losses below INR 25,000 are entirely borne by the insured, but a loss of INR 26,000 would be paid in full. The Institute Cargo Clauses used in India recognise franchise provisions, and Indian courts have upheld the distinction between franchise and excess in several judgments.

The IRDAI permits franchise deductibles across multiple product lines, and they serve an important commercial function by eliminating the administrative cost of processing small nuisance claims while ensuring meaningful losses receive full coverage. Underwriters in India frequently use franchise deductibles to manage portfolio profitability, particularly in high-frequency, low-severity lines such as inland transit and stock throughput policies. Policyholders should carefully review whether their policy contains a franchise or an excess, as the financial impact during a claim can differ significantly.