The modern business landscape has changed drastically over the past decade, becoming more complex and dynamic. One thing has stayed the same, however; companies and individuals continue to face an ever-expanding myriad of hurdles.
Whether you are an expert or a newbie in your field, there is a strong need to protect your financial stability and reputation to safeguard your future growth. That’s why smart professionals arm themselves with the right insurance cover, including professional indemnity excess layer insurance.
But before we jump into that, let us talk briefly about professional indemnity. This type of insurance is your vital ally, specifically if you provide specialised services, expertise, or advice to your clients and other businesses. Mistakes or failure to meet professional standards in these services can quickly lead to your client’s financial losses.
Professional indemnity, also known as professional liability insurance or errors and omissions insurance, protects you against claims of professional misconduct, including negligence, errors, or omissions. This insurance covers damages, attorney fees, and other legal costs arising from allegations of a past client due to negligent advice or other mistakes. Now you have your first line of defence.
The problem now is if a claim transcends your primary policy’s limits. Let us say that you are a financial advisor whose clients have substantial investments. Your standard coverage may be inadequate for your situation. This is where you need professional indemnity excess layer insurance.
What is Excess Layer Insurance?
Excess Layer Insurance provides an extra indemnity or coverage for a primary policy. Certain risks may exceed the limits on an individual’s current insurance policy in some trades or industries. For instance, a claim may be more than the limit under the base policy, which an additional policy can easily remedy.
However, an alternative is to obtain higher indemnity limits without the existing insurer’s full capacity. The latter is a much more cost-effective solution. Whichever you choose, don’t cancel your policy.
Let us break it down:
- The primary policy mentioned above refers to your professional indemnity insurance, which has a certain limit (primary limit). This is the maximum amount your insurer will pay for claims your policy covers.
- The “excess” pertained to the above is the amount you or your business must pay. Then, the excess layer insurance will cover the remaining portion beyond the primary policy’s limit.
The main purpose of obtaining excess layer insurance is to gain added protection from claims made by third parties, such as your previous clients, for financial losses caused by professional errors, omissions, or negligence. It allows you to obtain higher coverage limits, which is useful for professionals in high-risk industries and those with extensive contracts.
Excess Layer Insurance, also known as Excess Layer Liability, Excess of Loss Insurance, or Excess Layer Coverage, can be used not only for professional indemnity insurance but also public/product liability and employers’ liability.
How Does Excess Layer Insurance Work?
Here is a sample scenario that will help you understand how excess layer insurance works:
A contractor has a professional indemnity policy with a limit of indemnity of $5 million. For a while, this limit was adequate to meet his contractual risks and obligations. He later secures another contract that needs him to have a limit of indemnity of $10 million. Unfortunately, his insurer cannot give him any more coverage. The contractor then proceeds to purchase an excess layer cover of $5 million over the primary policy.
In the event of a claim, the insurer will pay all claims up to $5 million. If the claim is over the mentioned amount, the excess layer insurer will take care of the remaining amount.
So, in other words, the excess layer policy is triggered only if a major claim exceeds the amount covered by the main professional indemnity policy.
Just like your primary policy, the excess layer policy will also have what’s known as an excess layer limit or an excess layer attachment point. It works the same way where this amount is the maximum amount that the excess layer insurer will pay for claims. More often than not, the excess layer limit is higher than your primary policy limit.
What Are the Key Benefits of Excess Layer Insurance?
If you require an extra layer of protection and financial security, you could benefit from having excess layer insurance. Here are some compelling reasons why you should purchase this additional policy:
- You get higher coverage limits. The expanded coverage benefits many professionals and businesses. Suppose you have a larger business or you deal with substantial contracts. In that case, you should take the necessary steps to protect your reputation and financial future. Excess layer insurance allows you to handle bigger claims that your primary professional indemnity policy cannot because of the smaller limit.
- You get peace of mind. Large claims can ruin your financial stability and may impact your business on the whole. With an excess layer policy, you can have a safety net that can support you during a financially catastrophic claim. Use it as part of your risk management strategy, as it enables the transfer of a huge portion of risk to the insurance company rather than your own pockets or your business’ finances.
- It helps you meet your contractual obligations. Even if your client does not sue you, you may not be able to get new clients or enter a new contract if you do not meet their minimum level of professional indemnity coverage. Some agreements may even stipulate specifically having excess layer insurance. Not only does this give you protection, but it also helps open doors to gain high-value projects.
- Excess layer liability is a practical solution. You can always purchase a primary policy that comes with a high coverage limit. However, you can already tell that this strategy is costlier than simply buying excess layer insurance as a supplement to your primary professional indemnity policy. You get a targeted cover, allowing you to select the attachment point and coverage limit. This capacity also allows you to avoid over-insurance, where you could end up paying higher premiums than you need.
- It can be customised according to your requirements and circumstances. Excess layer insurance can be tailored to meet your specific needs. More often than not, it comes with flexible underwriting so you can secure your business with the right coverage.
In a complex industry, you could deal with multifaceted claims involving substantial financial exposure. You can protect yourself from these high-value claims with excess layer insurance.
How to Get Professional Indemnity Excess Layer Insurance
Getting professional indemnity excess layer insurance is relatively easy. However, it always helps when you have a broker or insurance professional like Grace Insurance to guide you. Typically, it begins with you evaluating your requirements. If you are an engineer, a medical professional, or anyone working in high-risk environments, excess layer coverage may be for you. Consider buying this cover, too, if you work with large contracts or your clients and industry standards require a high cover limit.
Once you have a broker or agent to work with you, you will need to provide information about your business or yourself, such as your client base, expertise, claims history, and revenue, among others. Your broker will give you quotes from insurers offering excess layer insurance. Use the quotes to determine which insurance company to choose based on their coverage limits, excess limits, and premiums.
Ensure that you have reviewed everything, including the terms and conditions of the policy before you begin the application. Sometimes, the insurer will check your application and may require additional underwriting to assess your risk profile further. Finally, once approved, you can read the policy document and pay the specified premium. It is always useful to stay in touch with your insurer and broker to get updates and recommendations, particularly if there are any changes in your revenue, risk profile, or the business itself.
Excess layer insurance is quite complex, which is why it is wise to purchase it via a broker. Grace Insurance has access to the best insurance markets. It will help ensure your policy works fluidly with your primary professional indemnity policy. Get in touch with us today for more information.