Are Umbrella and Excess Policies Interchangeable?

Yes, essentially they both provide higher limits of liability insurance coverage in addition to the underlying General Liability, Auto Liability and Worker’s Compensation Employer’s Liability policies. The difference between an umbrella policy and excess liability policy is that the umbrella policy could have broader coverage than the underlying General Liability, Auto Liability and Employer’s Liability. The excess liability policy is typically a “follow form” policy that will provide the same coverages / exclusions as the underlying General Liability, Auto Liability and Employer’s Liability policies.

Who Should Have an Umbrella Policy?

Typically an insurance buyer should always prefer to have a true umbrella policy if they can find one that is priced competitively. Sometimes the insured cannot obtain an umbrella policy and can only get an excess liability policy due to their business operations (high hazard versus lower hazard), poor loss experience or state in which they do business.

Who Should Have a Commercial Excess Liability Policy?

If an umbrella policy is not available in the marketplace, the only solution for higher limits of coverage are through an excess liability policy. The coverage is basically the same as an umbrella so not a lot of concern by going this route.

What Determines my Umbrella Insurance Cost?

The umbrella & excess liability policies are priced as a function of the premium of the underlying General Liability, Auto Liability or Employer’s Liability policies. So, if the insured adds more vehicles to their auto policy during the term their auto liability premium will go up, which will in turn increase the cost of the umbrella policy’s premium. Losses, new states of business operation with tougher legal climates, and the insurance company’s actuarial loss experience across their book of business can also impact the pricing on the umbrella or excess policies.

What Determines my Excess Liability Insurance Cost?

The same factors as the umbrella policy’s premium. Over the last couple of years, many insurance carriers have cut their umbrella capacity. For example, in 2020 they might have been able to purchase a $5M policy limit from their carrier, and in 2022 their carrier would only offer $2M, so they would have to approach an alternative excess liability market for the additional $3M in coverage that they need to satisfy their customer’s requirements. The shrinking market capacity has resulted in fewer carrier options and less competition among carriers which has caused the pricing to go up drastically. There have also been a great deal of “nuclear” claims verdicts in the insurance carrier’s auto liability experience which has caused increased claims activity in the umbrella markets. All of these factors have made it increasingly more expensive to achieve the desired limits of excess liability. We do not see an end in sight and expect these results to continue in the years to come.

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Commercial Excess Liability Coverage vs Umbrella Liability Coverage

As a business owner, one of the most important things to understand about insurance is that not all types of coverage are created equally. Case in point: commercial excess liability and umbrella insurance. What are the major differences between each one and which is right for your business? The answers to those questions are straightforward, but they also require you to understand a few key things about these policies in general.

What is an Underlying Policy?

In the insurance field, the term "underlying policy" simply refers to all insurance policies that provide coverage against the type of risks that businesses are likely to face on a daily basis. Commonly, this is used to describe the primary policy that protects an organization from things like liability claims. You pay a certain amount of money per month for a set amount of coverage (also referred to as your "limit") and you get to rest easy knowing that even if something devastating happens, you're still covered from a potentially catastrophic financial fallout.

What is Commercial Excess Liability Coverage?

Commercial excess liability insurance, as the name implies, extends the limits of an underlying policy. It doesn't change the amount of coverage that you have from your existing liability insurance. Rather, it simply offers additional coverage up to whatever the amount is that you've chosen to purchase.

All told, this is a type of insurance protection intended to cover unexpected events that could be financially devastating to your business. These include things like damage resulting from automobile accidents in company vehicles, liability claims, and more.

What is Commercial Umbrella Insurance?

In a commercial setting, umbrella insurance is a type of policy that helps to cover any claim that may be larger than the limits of a pre-existing underlying policy. If you have a general liability policy with a $100,000 limit and a claim is filed for $150,000, for example, that umbrella insurance policy would kick in at a certain point and help account for the difference.

Depending on the situation, this additional coverage can help with the costs of a wide range of different things. These include but are not limited to scenarios like:

Legal bills
Medical expenses
Expenses related to damage to someone else's property
Judgments
Settlements
Class action product and construction lawsuits
And more

Find What's Right for Your Business

At BIS Benefits, we understand that there is no "one size fits all" approach to obtaining the right insurance coverage or your business. Every organization is unique, which is why you must first find a partner who is capable of pulling together the coverage you need to account for your specific risks. Only then will you be able to guarantee you have the protection you need when you need it the most.

If you'd like to find out more information about commercial excess liability vs umbrella insurance, or if you have any additional questions you'd like to speak to a professional about in more detail, please don't delay - contact BIS Benefits today.

Commercial Excess Liability and Umbrella Insurance FAQ

Are Umbrella and Excess Policies Interchangeable?

Yes, essentially they both provide higher limits of liability insurance coverage in addition to the underlying General Liability, Auto Liability and Worker’s Compensation Employer’s Liability policies. The difference between an umbrella policy and excess liability policy is that the umbrella policy could have broader coverage than the underlying General Liability, Auto Liability and Employer’s Liability. The excess liability policy is typically a “follow form” policy that will provide the same coverages / exclusions as the underlying General Liability, Auto Liability and Employer’s Liability policies.
Who Should Have an Umbrella Policy?

Typically an insurance buyer should always prefer to have a true umbrella policy if they can find one that is priced competitively. Sometimes the insured cannot obtain an umbrella policy and can only get an excess liability policy due to their business operations (high hazard versus lower hazard), poor loss experience or state in which they do business.
Who Should Have a Commercial Excess Liability Policy?

If an umbrella policy is not available in the marketplace, the only solution for higher limits of coverage are through an excess liability policy. The coverage is basically the same as an umbrella so not a lot of concern by going this route.
What Determines my Umbrella Insurance Cost?

The umbrella & excess liability policies are priced as a function of the premium of the underlying General Liability, Auto Liability or Employer’s Liability policies. So, if the insured adds more vehicles to their auto policy during the term their auto liability premium will go up, which will in turn increase the cost of the umbrella policy’s premium. Losses, new states of business operation with tougher legal climates, and the insurance company’s actuarial loss experience across their book of business can also impact the pricing on the umbrella or excess policies.
What Determines my Excess Liability Insurance Cost?

The same factors as the umbrella policy’s premium. Over the last couple of years, many insurance carriers have cut their umbrella capacity. For example, in 2020 they might have been able to purchase a $5M policy limit from their carrier, and in 2022 their carrier would only offer $2M, so they would have to approach an alternative excess liability market for the additional $3M in coverage that they need to satisfy their customer’s requirements. The shrinking market capacity has resulted in fewer carrier options and less competition among carriers which has caused the pricing to go up drastically. There have also been a great deal of “nuclear” claims verdicts in the insurance carrier’s auto liability experience which has caused increased claims activity in the umbrella markets. All of these factors have made it increasingly more expensive to achieve the desired limits of excess liability. We do not see an end in sight and expect these results to continue in the years to come.