In simple terms, an excess of loss public liability insurance policy is a policy used to increase the public liability limit of indemnity to provide additional cover over and above that provided by any primary liability insurance policy.
Public liability insurance is subject to a limit of indemnity, this is the most the insurer will pay in the event of claim. The limit of indemnity is usually in multiples of millions of pounds and, not surprisingly, insurers have limits on the highest limit of indemnity they are prepared to give. This limit can be dependent on an insurer’s general risk appetite, or be because of factors that increase a risk’s catastrophe potential such as use of heat or exports to USA/Canada.
When would you use an excess of loss liability policy?
Excess of loss public liability insurance policies can be used when the insurer of the primary limit of indemnity is unable to provide a high enough limit of indemnity or is charging an uneconomic premium for cover at a certain level of cover.
Excess of loss public liability insurance policies are stand alone, additional policies that provide cover for a specified limit of indemnity in excess of the primary limit of indemnity.
If a very high limit of indemnity is required, there can be a number of excess of loss public liability insurance policies, normally referred to as layers, each providing different limits of indemnity to stacking up to achieve the required total limit.
Is the cover the same under an excess of loss policy?
An excess of loss public liability policy will normally follow the terms and conditions of the primary public liability policy and any underlying layers. However, this is not always the case and additional restrictive conditions can apply to the excess of loss policy that do not apply to the primary policy or underlying lying layers. These additional restrictions can be shown by specific endorsements to the policy or may be contained within the general conditions or exclusions, with asbestos and terrorism exclusions being examples of this.
Excess of loss public liability policies will normally ‘drop down’ to provide cover at a lower level on reduction or exhaustion of the primary or underlying limit of indemnity. Unless agreed otherwise, excess of loss cover will not be provided in excess of any inner limits contained in the primary policy, e.g. terrorism and financial loss.
The excess of loss public liability insurance market is not the same as the primary public liability insurance market, although some insurers will underwrite both of these classes of insurance. There are a number of insurers that specialise in underwriting excess of loss public liability insurance and are prepared to give limits of indemnity much larger than most primary limits of indemnity. Some insurers will underwrite risks on an excess of loss basis that will not underwrite on primary basis, as they are much more comfortable providing catastrophe cover only. A specialist liability insurance broker will be able to advise on you on your requirements and provide you with options for cover from a range of insurance providers.
How much does excess of loss public liability insurance cost?
The relative value of excess of loss public liability insurance is dependent upon the cost of the primary public liability policy because minimum premiums usually apply. It is common for excess of loss insurance to cost multiples of the primary public liability premium for a sole tradesman insurance, but a fraction of the public liability premium for large organisation.
The requirement for excess of loss public liability insurance is becoming more common, with contractual requirements for ever increasing limits of indemnity. Excess of loss cover can be provided on annual basis, covering all work, or on a specific contract basis. There can be little or no difference in cost between annual and contract specific cover, so both options should be explored when considering cover.
As specialists in the arrangement of public liability insurance, we are ideally placed to help you with your excess of loss or excess layer insurance requirments, please contact us if we may be of service to you or if you have any further questions about this class of cover.