Sharing is Not for Everyone: Limits on Multiyear Insurance Policies

By Chelsea Albright, Associate Account Executive

Typically, when we review accounts, we discuss coverages needed, limits available, deductibles offered, and what seems to be most important—premium. An item often overlooked is the policy period as it relates to the limits being offered. The majority of policies are annual, 12 month terms. Site accounts are the most common multiyear policies, but many carriers can offer two-year terms on other coverages as well, for example: General Liability and Contractors Pollution Liability. But what are the advantages and disadvantages of offering a multiyear option for these lines?

While lowered pricing is the main benefit to the insured, the limits may not be what they need. Make sure to review the policy wording and ask the underwriter what is happening to the available limits. Are they being stretched over the extended policy period or reinstated after 12 months? Most carriers can offer both options for a two-year term. Usually if there is a price cut for a multiyear policy, limits are being stretched over the two-year term, thus lowering the “available” limits. Double check your policy and/or specimen in two different sections: the Limits of Insurance and the Schedule of Forms. The Limits of Insurance section will usually refer to the policy period listed on the declarations page, but some may give additional stipulations regarding the 12-month period. Frequently, carriers will issue an endorsement amending the wording in the Limits section to amend/clarify whether the limits are being reinstated or stretched.

Depending on the market, revenues, and operations of the insured, multiyear policies can have their benefits and drawbacks depending on the circumstances. First, you won’t have to labor over the account the following year, but is this a missed opportunity to sit down with the insured and further build on your relationship? Will your insured grow throughout the year to have a lower rate per thousand in their premium? We typically find ratings will decrease with rising revenues. How are the insured’s operations changing? Most underwriters like to review risks annually to monitor any potential shifts in exposures. Will the market be more or less competitive the following year for the insured to consequently have a lower or higher rating? While we cannot predict the future, it is important to keep these points in mind.

Although we always think about what the insured is willing to purchase, we need to also keep in mind what is in the best interest of our insureds. Always remember to ask your broker or underwriter to confirm whether limits are reinstating or being stretched on multiyear options and to disclose this to the insured. While it may seem straightforward for those working in the insurance industry, it may not be clear to our insureds. Most insureds will appreciate this attention to detail and the time it takes to explain the differences.

Contact us today for more information on policy limits or to discuss a specific account.