Aggregate Excess Insurance
What Is Aggregate Excess Insurance?
Aggregate excess insurance limits the amount that a policyholder needs to pay out throughout a specific time span. Likewise called stop-loss insurance, intended to safeguard policyholders experience an abnormally high level of claims that are viewed as unexpected.
Aggregate excess insurance gives payment to total losses that happen throughout some stretch of time and isn't limited to a for every event basis.
Figuring out Aggregate Excess Insurance
Companies that self-insure are probably going to purchase this type of insurance coverage. The decision to set to the side a pool of money to cure an unexpected loss depends on the company's estimated losses given its loss experience. Notwithstanding, it's additionally conceivable that the company one day experiences losses far higher than it anticipated to happen and is unable to cover the amount or reluctant to make the payout from its working capital.
To shield itself from this portion of loss, the self-protecting company could purchase aggregate excess loss insurance. Buying such a policy means covering the difference between the losses that it can really self-insure and the losses that it might experience during a catastrophe.
The excess loss limit, called the loss fund, is set by the insurance company. It could be calculated in a number of ways. Generally, these methods consider the amount of losses that the policyholder has experienced over the long haul, changes to the insured's risk profile, as well as changes from actuarial analysis.
The limit might be communicated as a percentage of total expected losses, or as a fixed dollar amount.
Significant
The insurer that composes the aggregate excess policy could choose to hand off a portion of the risk to a reinsurance company.
Illustration of Aggregate Loss Insurance
An employer purchases a [workers' compensation](/laborers compensation) policy with aggregate excess coverage. The maximum amount that the company is responsible for is $500,000, with anything over this limit thought about the responsibility of the insurer.
The company has never experienced losses of $500,000. Then, out of nowhere, a number of its employees are harmed after a machine breakdowns, triggering claims amounting to $750,000. The company is responsible for claims up to $500,000, while the leftover difference ($250,000) is the amount for which the insurer is responsible.
The insurer that composes the aggregate excess policy might need to hand off a portion of the risk too, to what's known as a reinsurance company. The contract shows that the insurance company is responsible for losses up to $500,000, yet that the reinsurance company is responsible for anything over a stated limit, say $1 million or more.
That means that if the claims in the model above total $1.5 million, the company that took the policy pays the first $500,000, the aggregate insurer pays the next $500,000 and the reinsurer pays the last $500,000.
Highlights
- Aggregate excess insurance is additionally called stop-loss insurance.
- The excess loss limit might be communicated as a percentage of total expected losses or as a fixed dollar amount.
- Aggregate excess insurance policies limit the amount a policyholder needs to pay out over a specific period.
- Companies that self-insure are probably going to purchase this type of insurance coverage.
