Policy excesses – what is covered?

Consumers should be aware of the wordings of their insurance policies. Policy documents are even more complex than they used to be and consumers should be aware of what they are cover or not.

Another important area that that has changed in the past few years is what the insurers call “excess” – the part of each claim that the consumer has to pay. Not so long ago insurance policies came with only one excess. Today it is not uncommon to have both voluntary excesses and compulsory excesses, as well as different excesses for different types of claim.

If you buy your insurance through a comparison website, you will be asked what “voluntary excess” you would be willing to pay. What is not clear is that the amount you opt for may be included within or added on top of the insurer’s “compulsory excess.” Comparison sites and insurers should instead ask what total excess the consumer is willing to pay.

Many consumers have volunteered the excess that they want to pay, only to discover when they make a claim that the insurer has doubled the excess.

Consumers often also assume that if they opt for a larger excess the amount of premium they pay will be lower. This is no longer true. The insurers look at the average amount a person is willing to pay, and if you opt for the excess to be high, they put up your premium.

When you come to make a claim you might find that the excess you are charged bears no relation to the voluntary, compulsory of total excess you were told about when you bought the policy. Insurers charge different excesses for different types of driver. So they may charge a higher excess on your children than they do on you or charge different excesses for a different types of claim.

If you have a £100 excess on your home insurance and it is burgled that is what you may pay. However, if the house slides down a hill due to subsidence you will probably be charged and excess of up to £1,000 or maybe even more.

These excesses have come about due the rise of the comparison sites and the competition they have created. By allowing consumers to compare dozens of brands on price they have forced insurers to lower their headline price to compare. As prices have fallen, insurers have looked for other ways to recoup some of their lost revenue resulting in the confusing situation with excesses.

Many insurers acknowledge that they have unintentionally created a headache for customers. But, as everyone is doing it there is no way out. That’s why the regulator should step in and sort it out.

If you need any advice on your policy wordings including any excesses you should be aware of please speak to your Luker Rowe Account Manager.

Based on an article by James Daley the Managing Director of Fairer Finance.