Posted: Thu Nov 08, 2007 12:20 pm Post subject: How does excess effect premium
Hello all
To introduce myself, my name is Dave and I am a claims handler, and know very little about underwriting etc. My query is, if you add an excess to a policy, how can I calculate roughly how much the premium would go down for the end user.
I've had to write a report as part of some training, and i've touched onto the topic of imposing an excess on a policy, and need to calculate how much it would save/cost, and how much money we would lose through the reduced premiums.
Any advice appreciated, even a rough guess (proposed excess is £350, will reduce our claims by roughly 650 a year, its a property policy)
Regards
Mr B _________________ Register Now to have your Insurance queries solved.
Mr. B Hello ! and welcome to the community. I'm an adjuster and have been for over twenty years, I am only responding to your post so you won't think no one is ever here or that this forum is dead! But honey I have absolutely no idea what you are talking about! Hopefully someone with some underwriting experience or understanding will respond!
Excess Are you taking about deductibles? Well, its difficult to give you any exact figure of reduction in premium but the addition of a deductible to a policy certainly reduces the premium paid for it. In fact, premium and deductible share an inverse relationship, i.e. higher the value of deductible lower is the premium.
On the insurer's part, definitely you are losing a portion of the premium earning with the introduction of deductibles to the policy but it is also reducing your exposure to the risk because a fraction of the total damage will then be taken care of by the policy holder.
Guessing you are talking about the deductible…..the idea behind introducing deductibles to a policy is to make the policy holders behave responsibly towards their assets, so that they can't cause any damage to the property with their careless actions.
Anyway, choice of deductible should depend on the following aspects:
Value of the property (should be appraised by the professional appraiser before deciding upon the coverage)
Natures of the risks covered.
Nature of the coverage
Financial ability of the insured
In US you can take out deductible on the policy between $250 and $1,000. _________________ Register Now to have your Insurance queries solved.
Well now I feel extra stupid! You are talking about deductibles? I've never in my life heard of deductibles referred to as 'excess'..
LaAgent I'm not sure where you got this,
Quote:
In US you can take out deductible on the policy between $250 and $1,000.
Speaking only of auto, motorcycles, boat, and home owners. I've seen (and had), $50.00 all the way to 2500.00 deductibles, on personal policies. And have seen commerical policies go much higher.
Sorry about the confusion, I have always been trained to call it an excess when it is a low amount and a deductible on larger policies. I know its always referred to as an excess on british motor insurance policies, so maybe its a UK thing?
Anyhoo its actually a policy which covers all the schools within our city, we have about 140 orgs on it and its a basic balance of risk buildings and contents policy, and currently has "nil excess" - no deductible.
At the moment we have the following problems
*Very large amount of claims
*Lots of "petty" claims which probably cost us more in admin than the claim itself
*bad risk management on behalf of schools, as they adopt a "never mind, its insured" attiture to the risk
My proposal of adding a deductible to the policy would be
*Much lower amount of claims (I calculated that they will reduce by about 30-40%), meaning that workforce and resource can be put to better use
*Schools will be forced to adopt a better attitude to R.M, to avoid incurring a loss - even less claims!
I may just estimate things, I was just wanting a figure of how much we would lose on premiums, so I can balance it against how much we would save... but didn't want to ask the guy who does the underwriting!
Am I making sense?
And sorry - only been in insurance for little over 2 years, so have a lot less experience than some of you guys .
MrB _________________ Register Now to have your Insurance queries solved.
I know its always referred to as an excess on british motor insurance policies, so maybe its a UK thing?
I think so! That's funny, as you can likely tell I'm a middle America hick!!
Anyway, I think you have a brilliant idea. The insurance company where I started my career with in 1987, the agents (and underwriting dept) would often increase deductibles on a policy that showed a pattern of claims, or ''claims conscience'' they called it. Mostly small annoying claims, but if the owner is not 'sharing' in the loss, then there was no reason to not file these claims. There were many policies at that time with 'nil' deductibles on comprehensive coverage, and collision with 50.00 deductibles, also at that time still had many homeowners policies with 50 deducts as well. Of course these insureds were paying an additional premium for the lower deductible therefore (in my opinion anyway) that was their right.
Sorry I haven't had chance to reply earlier; i'm a busy man
I finished the report, basically a huge comparison etc etc and eventually concluded that adding a £350 ($700ish) excess/deductible will save us about £500,000 (about $1 million)!
And thats the end of that chapter! hehe
Thanks for your help
B _________________ Register Now to have your Insurance queries solved.
But honey I have absolutely no idea what you are talking about! 
Hopefully someone with some underwriting experience or understanding will respond!
Are you taking about deductibles? Well, its difficult to give you any exact figure of reduction in premium but the addition of a deductible to a policy certainly reduces the premium paid for it. In fact, premium and deductible share an inverse relationship, i.e. higher the value of deductible lower is the premium.
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