Excess Layer Insurance
Excess layer insurance (also known as top up insurance) provides additional cover above the limit set by the primary insurance policy. It allows a firm to increase its cover to meet specific risk or contract requirements.
Guide to Excess Layer Insurance
- What is excess layer insurance?
- How does it work?
- What does it cost?
- How the premium is calculated
- Buying a policy
What is excess layer insurance?
An excess layer insurance policy is an insurance policy which is added when the primary Insurer has reached the maximum limit up to which they are able to offer cover. It enables firms to increase their cover Like building blocks, the policy or policies form layers of insurance cover, up to the full amount required. This is usually due to two reasons:
- A client insists that the firm provides a specified amount of cover, giving them comfort they will not be under-insured if they ever needed to claim against them.
- The firm is involved in very large projects or areas of high risk where it feels that more PI cover is necessary to adequately protect the business.
For example, an Insurance Company provides the insured firm with PI insurance for claims of up to £ 5 million. But the insured firm has a large client who insists they carry PI insurance of £ 10 million. Their broker will then provide a separate excess layer policy with a different insurance company for an additional £ 5 million cover. The two policies combined are then providing the required £ 10 million cover.
This is common practice in the PI insurance market and enables firms to purchase almost any level of cover they require.
How does it work?
The excess layer policy is only triggered if a major claim occurs which exceeds the amount of cover provided by the primary policy. In practice, the primary insurer will deal with all claims up to the first £ 5 million but if a claim occurs which exceeds the £ 5 million, then the insurance company covering the excess layer will pay the balance.
Some larger professional services firms such as solicitors and accountants may buy cover of £ 5010 million or more. This could see at least 10 different insurance companies participating somewhere in the programme, depending on which layer they insure.
How much does it cost?
The cost of excess layer insurance is surprisingly modest compared to the primary PI insurance policy. In fact, it can be just a fraction of the cost of the primary policy.
This is because most claims will fall to the primary insurance policy and excess layer policies are rarely called on unless an exceptionally large claim occurs. This level of low risk is reflected in the cost of the excess layer insurance. The cost or rate reduces as the level of cover increases so an upper level of excess layer will cost less than the lower level.
How is the premium calculated?
Typically, an excess layer underwriter will first look at the usual risk information included on the proposer's PI proposal form together with the premium being charged for the primary insurance policy. They will then decide what they feel is an adequate premium for the level of excess layer they are being asked to provide.
This is done by using a combination of their own company ‘book rate’, some discussion with the broker and their own commercial judgement of the risk.
Buying a policy
This insurance is complex and needs to be purchased via a broker to access the correct insurance markets and ensure the policy/s fits seamlessly to your primary policy.
This guidance note is intended for information purposes only. It is not and does not purport to be legal advice or specific insurance advice. Whilst all care has been taken to ensure its accuracy at the time of writing it is not to be regarded as a substitute for specific advice. If you require specific advice, please contact your brokers or call us on 0345 251 4000. This guidance note shall not be reproduced in any form without our prior permission. © All copyright is owned by Professional Indemnity Insurance Brokers Ltd.