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Excess layer insurance explained

16/02/2023

Three umbrellas stacked on top of each other to represent excess layer insurance

What’s excess layer insurance? Well, it’s not to be confused with the insurance excess on your policy. That’s something completely different.

Not to be harsh on poor old excess layer…but it’s one of those terms you likely won’t hear about – until you need it. And that’s because someone’s recommended it: a broker (like us), most likely.

Whether or not you need it, though, there are good reasons for knowing what excess layer insurance is and how it works. Which we’ll explain.

Know your limits

It stands to reason that insurance companies can’t cover limitless risk. If they did, they’d quickly go bust.

That’s why your insurance policy has a specified level of cover (sometimes called a ‘limit of indemnity’ or ‘limit of liability’). That’s the maximum amount your insurer pays out for any one or multiple claims.

Sometimes you might need more cover than your policy allows, though. This could be because:

  • Your client’s asked for a higher level of cover before they work with you.
  • You’ve taken on some large or risky contracts. (We see lots of requests come in through architecture and engineering firms, for example.)

Let’s say, then, that your professional indemnity policy has a £5 million cover limit. But for whatever reason, you ask your insurer to up your cover to £10 million.

They might well refuse, on the basis that the work you’re about to do is twice as risky as what they’d normally insure.

You’ve hit a brick wall. So, what do you do? Call it a day and cancel your contracts?

No way. Thanks to a useful thing called excess layer insurance, you can find someone willing to slice you a deal to get you that higher limit. Here’s how.

Slice or no dice

Excess layer insurance (sometimes called ‘top up insurance’) is where an insurer agrees to split your liability with other insurers, reducing the risk each insurer takes on.

It works like this: you purchase a policy with one insurer as your primary insurance – that’s your ‘base’. On top of that, you buy as many ‘layers’ of cover as you need. With as many other insurers as you need.

So, to get to £10 million worth of cover, you might start out by buying a £2 million primary policy. On top of which, you’ll buy a £3 million excess policy, followed by a £5 million policy. Thereby ‘topping up’ your cover to get you the amount you need.

More insurance, more problems?

This might all sound a bit complicated. But the mechanics of excess layer insurance are really quite simple. Just think of it as a tasty lasagne. Or a tiramisu where all the flavours are concentrated at the bottom.

Most of your claims will be soaked up by your primary policy, the so-called ‘base’ of your insurance. Claims that exceed your liability limit will be covered by your primary policy first, then by the excess layers.

Hopefully, having excess layer insurance is a win-win for everyone. You get the cover you need to win your client’s confidence and crack on with your contracts. And your insurers carry only as much risk as they’re willing to take.

Bespoke not broke

Some things to bear in mind when buying excess layer cover…

Given how excess layer works, it can’t be bought ready-made or online – you have to get it through an insurance broker. A good broker will have access to lots of different markets. They’re best placed to find the insurers willing to work with you (and other insurers too) to take on a higher level of liability.

Having separate policies with separate insurers can get confusing. So, to keep things simple, you’ll want your primary policy to carry most of the risk. That way, you won’t have to call on your excess layers unless you really need to.

A broker can streamline things for you in other ways, too. Payment-wise, they can invoice you for all your policies, or arrange credit. And if you want to cancel your policy mid-term or change the wording in your insurance, they’ll talk to your insurers for you.

Last but not least, excess layer professional indemnity insurance isn’t the only product out there. With the right broker on your side, you can purchase excess layer cover for public liability, cyber and other types of insurance, too.

Excess layer insurance in a nutshell

Let’s recap then, briefly.

Excess layer insurance is there to help you when you need cover that exceeds the limits of a standard policy. It involves buying a primary policy, followed by excess layers with other insurers.

Your excess layer is triggered only when a claim exceeds your primary policy’s cover limit. Otherwise, your primary policy absorbs the bulk of the claim.

All this can be a bit tricky to get your head around so feel free to get in touch if you need help. Call the team on 0345 222 5391 or email contactus@policybee.co.uk.

Image used under license from Shutterstock.

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