Alternative business insurance structures in response to Covid-19

The Australian insurance industry is very traditional when offering insurance structures to its clients relying on the standard risk assessment, applying rates, charging a premium, imposing excesses and paying claims. However, with the lockdowns we are experiencing and cash flows negatively impacted across many industries and companies, it is prudent to look at alternatives that have been proven in other countries and will reduce capital expenditure while continuing to protect the assets of a company and still maintain acceptable results for insurance companies.

The alternatives are not too difficult to implement and need to be understood by all parties, particularly when considering claims experiences, be they erratic or constant. They may not be suitable for all as the rating structure is different and may not be applicable, but ignoring them could result in unnecessary costs at a time when any expense to a company needs to be examined.

As an example, an aggregate excess is a known amount that is set aside by a company to pay for claims up to that limit. The obvious advantage is that the maximum amount that is payable by a company, i.e. the aggregate excess amount and the premium is known prior to the policy period and likely to be cheaper than a premium in the traditional sense. If the aggregate excess has not been exceeded, the balance could be added to the aggregate excess for the following insurance period, thus creating further savings or could be added to the company’s bottom line after the policy period has expired. Insurance companies manage the aggregate excess and the claims handling on the company’s behalf, so their client can be reassured that they are being managed correctly. An insurance company may charge a fee for the claims handling, but that is invariably taken from the aggregate excess amount. If the aggregate excess is exceeded, the insurance company pays claims as normal.

Another alternative is a ‘mini/max’ deal whereby a company pays a lower premium (the mini part of the structure) for their insurance and if claims exceed a certain percentage of the initial premium, an additional amount is payable. In fact, the additional amount may be split into several layers up to the maximum amount, thus minimalizing capital outlay. The premium layers and percentages are pre-agreed by all parties prior to the inception of a policy so that there is no misunderstanding.

Beyond the concepts noted above, it is also possible to blend the two options into one offering, which further benefits all parties, although it is worth noting that they are all geared towards short tail business, rather than long tail business.

For further details on how this might benefit your company, contact Steve Warren on +61 404 669 907 or via email at, who can consult and advise how best to implement for your company. Steve does not want to be appointed as a broker, but act on a consultancy basis only.