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September 26, 2022

Best practices when purchasing excess liability coverage

When looking for excess liability coverage for your company, there can be many pitfalls along the way. We’ve put together this helpful guide to help you avoid those common mistakes and help your company obtain the coverage it really needs.

Be aware of social inflation and nuclear verdicts.

The first common mistake we see when looking at excess liability coverage layering is underestimating social inflation and nuclear verdicts. Proper excess coverage is important as companies large and small have been majorly affected by unexpected significant losses, with some having to sell part or all of their company.

Making sure your broker has access to a large array of data and benchmarking to ensure the company has the right number of layers and coverages is key. Many companies have reduced limits recently because of the high premiums or unavailability of higher limits. Seek out brokers that offer access to detailed analytics modeling and peer benchmarking that allows you to make better-informed decisions on program optimization, including limit adequacy. Using this type of information and analysis can also lead to your company realizing that you are over-insured, allowing you to cut back on some layering.  

Factor in punitive damages.

Typically, punitive damages can be excluded from an excess liability claim based on your jurisdiction. If you work with a broker that doesn’t factor in covering those, punitive damages can be a big pain point when it comes to filing a loss. Consider working with a global broker who can negotiate coverage terms that allow for the most favorable jurisdiction to be applicable in the event of a loss. Additionally, consider wrapping Bermuda coverage offshore.

Issues can arise from using a wholesaler.  

While wholesalers play an important role in the overall market, when it comes to placing excess facility needs, wholesalers cost more, take longer to find solutions, and generally don’t have the resources to offer specialized attention. These issues mean you should work with a broker that allows direct market placements to “A” rated carriers and is not dependent on wholesale brokers.

Be sure you have access to the London and Bermuda markets.

There are advantages to working with a global insurance broker as they may have direct access to the London and Bermuda insurance markets. If you work with a broker that doesn’t allow you to access these markets, you may not be able to cover all your liability risk. Over the last five years, many clients have had to secure coverage in the London and Bermuda insurance markets because of the creativity of these markets, their appetite for risk, and the large limits they can deploy.

Look for brokers that have colleagues and physical offices located directly in London and Bermuda. Those brokers can often accommodate face-to-face meetings with underwriters to creatively solve your excess facility needs.

Look out for gaps between coverage layers.

The last mistake worth mentioning is being unaware of gaps between the coverage layers and underestimating the time to get coverage placed. Many excess liability policies promote themselves as “follow form” policies when in fact there are many exclusions, conditions, and definitions that could cause a claim to be denied.

At Marsh McLennan Agency (MMA), we use the Marsh XSellence coverage form—an important and proprietary tool—to help mitigate this mistake. We leverage the strength of Marsh to help our clients receive consistent access to markets and coverage as it is approved by most carriers and states.

Thankfully, you can avoid these common mistakes when securing excess facility coverage by working with MMA. If you have any questions on how to make sure you obtain the correct excess liability coverage, contact an MMA specialist here.