How to handle a high(er) excess motor policy

In the hard market, clients will often be faced with rising premium costs and look for advice from their broker as to how best alleviate these pressures.

When a client is considering less cover or an increase in their excess, both opportunities and challenges will present themselves for brokers.

Taking higher levels of self-insurance, by increasing excess levels, will be the most common strategy of managing these premium increases.

With an increase to the basic excess on commercial motor policies, the first and obvious outcome is generally a premium saving. Primarily the saving comes about because the projected claims cost for the insurer is reduced.

However, when a client selects a higher excess they forgo not only the “insurance risk transfer” of the amount of the excess – i.e. now self-insuring from a traditional excess level of say $500 to the new excess of say $5,000, but also a raft of benefits that a lower excess policy provides.

Most policy wordings in Australia will generally include often overlooked and behind the scenes services, such as:

  • Management of recovery from at-fault third parties
  • Accident repair assessments
  • Repair guarantees, and
  • Defence of frivolous third party demands when the insured is alleged to be at fault

Typically, the client who elects to take a higher excess to save premium is the one incurring claims and would benefit most for the loss-handling services provided by an insurer.

Therefore, when a client does elect to take a higher excess, the question needs to be asked – Who will be performing these tasks that were previously provided by the insurer and paid for within a policy premium?

Some, if not all of these tasks may be able to be performed by the:

  • Client
  • Broker
  • External loss assessing or claims adjusting firm
  • Law firm of the clients choice, or
  • Insurers

There will be a cost associated with the client outsourcing these services – larger brokers are now commonly offering most of these services in their “value add” proposition.

Depending on the style of the client, they may be quite capable of undertaking some of these tasks themselves as well as, or even better than, their insurance provider and only need to use an external party in some circumstances.

Clients who operate a fleet as a core function of their business will generally be able to manage accident repairs either in-house or with their favoured smash repairers. They may not however have in-house expertise in dealing with and negotiating with third party claims or recoveries. On the other hand some clients will have sound in-house legal and commercial expertise to handle third party disputes, but not the motor trade skills to manage the repair process.

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

Smaller clients moving to a higher excess for the first time may only have a fraction of the self-insured incidents of a large fleet with significant claims frequency. 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 4-8 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, but rather need the broker to be able to respond quickly to client requests for things such as:

  • Providing written market valuations on vehicles
  • Conducting and reporting on an independent assessment of a repair quote (of either the clients damage or a third parties demand),
  • Producing Pro-forma Letters of Demand and Denial

Maintaining records of self-insured losses is very important. In future years, if a client seeks to reduce the excess level, prospective insurers will want to understand the exposure represented of losses below the expiring higher excess level.

Incident reporting and recording should be maintained as though an accident was a traditionally insured loss – have incidents or claim forms completed and retained, and take photos! This information will prove vital in third party recoveries and negotiations on fault.

In the hard market, moving a client to a higher excess policy is an entirely appropriate approach for the skilled broker.

Utilising some of the tools mentioned in this piece, they will be able demonstrate the role played in recommending not just what cover a client may buy, but what the considerations are of buying less cover and as a result taking more self-insurance.