Excess Insurance

Excess insurance is coverage that pays only after the loss exceeds the limit of an underlying policy, up to its own limit. It protects against the severe outcomes that primary coverage does not reach.

Large liability programs are built in layers. A primary policy covers the first dollars of loss, and excess policies sit above it. The upper layers are rarely touched, but when they are, the amounts are large.

Pricing an excess layer depends on the shape of the severity distribution in its range, which is where data is thinnest. Venue, doctrine and the potential for large verdicts are central.

Excess insurance is not reinsurance. It is coverage sold to the policyholder. Reinsurance is coverage bought by an insurer.