Many customers of insurance policies have the notion that insurers would pay for every loss amount they put in as a claim, once the insurer accepts liability. I have had a few clients saying their motor policy should pay 100% of the loss amount, even when the policy has an excess.
An excess, sometimes called a deductible, is the first portion of a claim amount, borne by an insured, ie the client, before the insurer pays their share of the claim. For example, a typical comprehensive motor policy can have a 10% excess of every own damage claim. This means, for every loss to the client’s car, they would be responsible for the first 10% of the claim amount, before the insurance company settles the remaining 90%. If the claim amount is GHC1,000.00 , the insured would bear GHC100.00 and the insurer pays the difference of GHC900.00
Excesses are essentially on most insurance policies – either value or time excess. They are placed on insurance policies for a reason. First, they are to help prevent insureds or clients from claiming for every little loss. For example, a claim amount of GHC20.00 . The administrative cost alone of processing such low claims may even be higher than the claim amount of GHC20, so would not make an economic sense to process such claims.
Secondly, an excess is placed on an insurance policy to place a duty of care on the insured, ie to make the insured much more responsible in preventing a loss. Where a client knows that they will bear a portion of a loss, they become more conscious in ensuring the loss does not occur so they do not part with their money.
Flowing from the above, insurers would almost always place an excess on their policies. Even though excesses may be purchased back at an additional premium in some cases, insurers would ordinarily have them placed on their products.
Excesses are therefore not excessive to an insurance contract or product. It makes the client more careful in loss prevention for their own advantage, and that of an insurance company.
So the next time you purchase an insurance product, ask your agent/ broker or the insurance officer about the excess on the policy.
By Isaac Adu ACII MSc BSc