Insurance - excess charges?

Random

Can anyone advise what the purpose of excess charges are on insurance? Is it to try and limit fraud solely? Or is there a further reason for it?

Thanks

Colonel Sanders

they are designed to eliminate small claims with a disproportionate percentage of total claim cost to the insurer being related to expenses. The upside for the insured is the the higher the excess the lower the premium.

Random

That first sentence of yours ... could you break it down a bit?

Colonel Sanders

basically an excess involves the policy holder being liable for the first EURx of a claim. Lets say the first 200. If you make a claim for 1000 you pay the first 200 and the insurer pays the remaining 800. If the claim cost will be below 200 then the insured pays the total amount and the insurer is not liable for any of the claim. what this does is makes sure that many small claims (those below 200 in this example) will now not be handled by the insurer.

In settling claims the insurer must pay for any damage/injury amount etc but also incurs claims handling expenses (administration, legal fees etc). By eliminating small claims the insurer also eliminates the expenses involved in settling these small claims. The total cost to the insurer will be (claim cost + expenses). In the case of very small claims the expense eliment may make up a very large proportion of the total cost. By eliminating the need to handle and incur expenses on very small claims then the insurers total expenses will be less and the can therefore charge a smaller premium if an excess is in place.

Random

Thanks - clearer now.