Is a high excess insurance policy the best option?

THE most common approach of managing premium increases is to accept a high excess policy. While this gives the client greater ‘ownership’ of the risk, brokers should make sure they are fully aware of the advantages and disadvantages of these policies.

Many policies contain important but overlooked loss-handling services, such as repair assessments, repair guarantees, recovery from at-fault third parties and defence against frivolous third-party demands.

Typically, clients who elect to take a higher excess policy in order to reduce their premiums are already incurring above-average claims and therefore are the ones that stand to benefit most from these free services.

Before recommending a higher excess policy, it is worth asking your client who will perform these tasks that were previously provided by the insurer and paid for within a policy premium?

Many clients will be able to perform some or all of these tasks using internal resources or in conjunction with external parties, such as their broker, insurer, legal counsel or an independent loss assessment or claims adjustment provider. However, there will be a cost associated with performing or outsourcing these services. 

Likewise, large fleet operators might be able to manage the repairs process, either in-house or via their preferred repairer. However, they are unlikely to have the in-house expertise required to manage third-party claims or recoveries. 

A key consideration when determining an appropriate higher excess level will be the expected number of additional self-insured accidents and establishing what claims handling procedures may need to be put in place.

Smaller clients moving to a higher excess may only have a fraction of the self-insured incidents of a large fleet. Large fleets, however, typically have internal fleet managers and review yearly their level of self-insurance and associated loss handling.

Most fleets of 25–50 units will likely have around 4 to 8 extra self-insured incidents to manage if they move the excess from $1,000 to $5,000. These low numbers do not warrant there being a robust loss-handling system put in place and will rely on their broker to be able to respond quickly to client requests for information, such as written market valuations on vehicles, independent assessment of a repair quotes and pro-forma Letters of Demand and Denial.

Maintaining records of self-insured losses is very important. If the client wishes to reduce the excess at some stage in the future, prospective insurers will want to understand the extent of losses occurring below the expiring excess level.

Incident reporting and recording should be maintained as though an accident was a conventionally-insured loss. Complete incident reports, claim forms and take photos! This information will prove vital in third-party recoveries and negotiations on fault.

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