Excess Layer Key Considerations

Key Considerations

  1. Coverage Limits
    Ensure your excess layer coverage amount is sufficient to protect you against the worst possible scenario that you could face with a claim. Review your underlying policy wording and the terms of the contracts you enter into that may require this extra cover. Customize your excess layer policy to ensure it aligns with your industry, risk profile, and the potential magnitude of claims you may face.
  2. Insurer Reputation:
    Choose a reputable insurer with a track record of handling claims fairly and efficiently. A reliable insurer can make a significant difference when you need to rely on your excess layer coverage. Your broker will assist you in determining the financial stability of the insurers when they advise you.
  3. Details of your Contract
    You and your broker will have to ensure the terms offered match the requirements you have under contract. Is your contact domestic or international, does the coverage exclude any territories. Have you assumed liability under contract that is at odds with your insurance primary layer? 
  4. Cost-Benefit Analysis:
    Weigh the cost of excess layer insurance against the potential financial risks your business faces. The investment in this insurance can be well worth it in case of a substantial liability claim.
  5. When the Cover is Triggered 
    Policyholders may overlook the intricacies of excess insurance policies because they simply follow form to the primary underlying policy.  However there are a number of things that policyholders need to be aware of both when they are placing insurance and when they are submitting claims. First is the trigger language or the exhaustion language in their excess policies. This is crucial because this language is what triggers insurance under the excess policies. For an excess policy to be triggered the underlying limits have to be exhausted.   

    How can they be exhausted? They either can be exhausted by payments by the underlying insurer, by the insured, or even a third party.  The best type of exhaustion language is the language that allows for exhaustion by any of those three categories the underlying insurer, the insured, or a third party. When placing their insurance policyholders have to ensure that their excess policies have that broad overarching exhaustion language. Otherwise, when it comes time to submit and even settle a claim it could be in a position where they do not have adequate access to their excess insurance.
  6. Does the Cover match the primary layer 
    It is important that the excess insurer matches up as squarely as possible with their primary insurance carrier. That is, you want to avoid situations where excess insurance does not provide coverage as broadly as your primary insurance.  An example is Dispute resolution: Maybe the primary policy allows you to bring a lawsuit against your insurer when they deny a claim if there is a disagreement over whether a claim is covered. But your excess policies mandate alternative dispute resolution process, whether that being mediation, arbitration, or both. You’re in a position then where theoretically you could litigate against your primary insurer, but then you would have to go through an ADR process with your excess insurers.  

    The reason you want all of your policies to be harmonious and changes to flow through each policy is so that your coverage is consistent so that there aren’t any gaps in coverage. If you have coverage under your primary policy you want that coverage to be consistent through each excess layer so you’re not left with coverage in your primary but no excess coverage in the event that your loss hits those policies
  7. Particulars of the Quote
    You need to consider is the excess affordable, what gives rise to a claim under the excess layer and does the wording used leave any gaps in cover from your primary layer policy. Do the exclusions and conditions seem reasonable and do they match the primary cover? Could you accept further coverage exclusions that would reduce the premium but not really give rise to additional exposure to your firm?

All of the above are elements of your decision making process that as your broker we can assist with and discuss with you. In the end you and your company must be satisifed with the outcome and the coverage.  


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