22/02/2021
Excess Liability: Are you operating at your limit?
A tough insurance market and a hardening insurer attitude towards risk are combining to create ideal conditions for Excess Liability Insurance. Although policies have been around since the 1960s, it’s likely to attract greater levels of attention in 2021, especially amongst organisations that need Public and Products Liability Insurance.
What is Excess Liability Cover?
It’s a type of insurance that provides extra cover on top of that offered by your core (primary) Liability policy. Typically it relates to Public and Products Liability, but it can also be bought for Employers’ Liability or Professional Indemnity policies.
Excess Liability steps in whenever the limits of the primary policy are exhausted by a claim, which can happen in the event of a very serious injury, large-claim litigation case or product liability crisis.
How does it work?
Director Scott Jarvis explains by way of example:
You have £5m Public & Products Liability cover with your main (primary) insurer but win a contract that requires £10m cover overall. Your primary insurer might not want to increase its maximum exposure. You would therefore need to purchase Excess Liability for £5m to “top-up” the limit.
Depending on the trade sector and the activities to be undertaken, the Excess Layer of £5m might be bought in one lump sum or broken down into multiple layers. For instance, £3m & £2m with different insurers – these would be known as £3m over £5m and £2m over £8m layers respectively.
Who needs Excess Liability cover?
Potentially every business needs to consider it, depending on contractual demands and growth.
It’s particularly useful if there is an increased number of staff at your premises due to expansion, if you’re starting work on higher-value third-party property or if you’re undertaking higher risk activities.
The level purchased will therefore be driven contractually or by a risk assessment, in order to ensure that the organisation is insured to an adequate level.
Read more: What is Public Liability Insurance?
Why now?
As the value of court awards in liability cases and the value of property have both risen, insurers are keen to share risk around the market.
This has led to a reduction in some of the policy limits available on primary liability policies. This downscaling of protection may mean you need to seek extra cover as a top-up.
In addition, some off-the-shelf protection has a limit of £1m, but in order to win a tender, you may need £5m protection. That means a £4m gap needs to be bridged through an Excess Liability Cover policy. This can be particularly useful as a one-off purchase that suits the requirements of an individual contract or tender process. An experienced broker can help you to find the right policy.
The current ‘hard market’ conditions may also mean that many insurers are looking to reduce their primary limit to control their capacity and limit exposures. In Scott’s example above, £5m cover could easily be reduced to £1m, meaning £9m of Excess Liability would need to be arranged.
When the primary layer reduces, the first Excess layer becomes more expensive because that insurer now has a greater exposure; the “buffer” to their limit is greatly reduced. The same applies to each layer above.
Do I really need it?
An Excess Liability policy is designed to cover the potential impacts of a severe incident – a scenario that could result in a very large claim. Such a claim could severely affect your business’s finances or even force it to cease trading.
It’s important to remember that such incidents are not the sole domain of large-turnover businesses.
The number one source[1] of claims, to date, is heat work carried out away from the business premises. Such claims can be significant in size, affecting the bottom line of any business that does not have the Excess Liability Cover. Without this, the claim payout will be restricted by the primary policy limit.
For instance, if your Public Liability policy had a limit of £1m, but the damage sustained cost £5m to put right, without the Excess Liability cover, your business would need to make up the shortfall.
Given that example, if your policy limit is low and you operate in a high-risk sector, you may want to consider Excess Liability cover.
Alternatively, if you find your Public and/or Product Liability limit is reduced at renewal, you may want to explore this option.
Find out more
Contact the One Broker team to find out more about Excess Liability cover today.
Source:
[1] Chubb Insurance (provider of Excess Liability cover)
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