An Excess Liability Policy provides additional layers of insurance coverage, typically in million dollar increments. A General Liability Policy may provide $1 million per occurrence. If a business needs higher limits, an Excess Liability Policy is the ticket. If, for example, a vendor requires its contractors to have $5 million in coverage, the company would have a $1 million base liability policy and add a $4 million excess to get to the required $5 million dollar total.
Because severely high awards are less common, additional layers become progressively less expensive. For higher limits — $25 and $50 million or higher — we often use several insurance carriers to reach the required limit. Thus Travelers might take the first $5 million, then Liberty takes the next $10 million, Philadelphia the next $15, and so on…each providing better pricing for the layers with which they are most comfortable. This strategy also provides “spread of risk” for the carriers, meaning a single company won’t own the entire claim. The only downside to this approach is when a claim reaches into the upper levels of coverage as each carrier may have differing legal strategies, possibly complicating a speedy resolution.
As a general rule of thumb, figure that each million dollars of insurance cost $1,000. A $5 million Excess Liability Policy would then cost $5,000. After the first $10 million, a lower rate per million kicks in. For businesses with benign exposures buying insurance only to satisfy a large customer, the cost may be less. A business with greater exposure, such as products liability, may incur a higher premium price per million.
Always consult with a professional for obtaining this insurance to insure integration with your primary program and cost effectiveness. Look to the professionals at Gordon Atlantic Insurance for guidance on pricing strategies and designing a fit with the rest of your risk program.