Why do you need Excess of Loss cover?

WHY XoL?

An Excess of Loss insurance policy could leave your client exposed if it includes a condition that requires the primary insurer to pay their full limit before any cover is granted

WHY IS THIS A PROBLEM?

This condition means the Excess policy will not respond if a proportional settlement is applied by the primary insurer ie the Excess insurer won’t have to pay out if the primary insurer has not paid their full limit – and, as we know, the Insurance Act allows insurers to apply a remedy (such as a proportional settlement) if the policyholder has not made a fair representation of the risk.

HOW IS PEN DIFFERENT

Under our Excess policy, the decision whether to grant cover does not rest solely on the primary insurer’s remedy. We retain the right to apply our own remedy ie we won’t necessarily follow the same remedy as the primary insurer.

For example:

• Public Liability loss - £8M
• Primary insurer Public Liability limit of indemnity - £5M
• Excess Public Liability limit of indemnity - £5M
• Primary insurer applies proportionate remedy of 90% ie the primary insurer pays £4.5M (£5M limit of indemnity x 90%)
• In this instance Pen decides not to apply any remedy ie the settlement is £3M
• So the insured only has to pay £0.5M

In the absence of an enhanced Excess wording, the Excess insurer would not be obliged to make a payment as the Primary layer has not been exhausted and it would fall upon the policyholder to pay £3.5M of the £8M loss.