DEFINITION of 'Manual Excess'

The premium charged for insurance coverage above the liability limit. Manual excess rates are determined based on the risk factors associated with the coverage, such as the type of liability being covered and the estimated severity and frequency of losses. Manual excess insurance is a form of temporary excess insurance.

BREAKING DOWN 'Manual Excess'

A company purchases insurance policies to cover against risks that it has identified. While a company may purchase a policy with a large aggregate limit on its coverage, this can be expensive, prompting the company to try to only purchase the amount of coverage that it really needs.

For many companies, the amount of coverage purchased is enough to cover them against perils, but situations may arise in which the company bumps up against its limit before the policy period has been reached. Some risks that a policyholder insures against may reduce the difference between the coverage limit outlined in the policy and the average risk. This can lead to a situation in which the insured will bump up against the limit, or may exhaust the aggregate coverage limit entirely. If the limit is exhausted the insured will be responsible for all claims until the limit is reset, which carries great risk if the insured experiences a severe claim. The insured may want to increase the aggregate limit for the amount of time remaining on the policy, and the insurer may offer an increased limit for an additional premium.

Insurance companies determine what to charge for additional coverage limits by examining the risk factors associated with the policy type. The data collected is used to create manual excess limit tables. These additional limits only apply until the end of the policy period, and the excess aggregate limit applies after the date that the additional limit was purchased.

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