Umbrella Policies

[Ali]

I would deeply appreciate any responses:

1) What are umbrella policies and what are they used for?

2) Further, I would be grateful if you could elaborate the following statement of Clark(part6 reading) regarding Umbrella policies:

"The ceding company may imclude umbrella policies in the business subject to the treaty.These policies are excess of an underlying retention and "drop down" if an underlying aggregate is exhausted.

If the umbrella policies are above primary policies written by the ceding company, then it is best to consider the combination of primary and excess as a single policy with a higher limit. For experience rating the primary and excess pieces are simply added together"

Many thanks for putting your time into it!

[Franchise]

An umbrella policy is a liability policy that is made to cover "over the top" of your underlying policies (auto liability or homeowners liability). If you are found at fault for damages in an auto accident and the total of the damages exceeds the policy limits of your auto policy, then the umbrella policy would kick in and pay the rest. That's the meaning of the first part of the bolded sentence you included. Your auto policy is the underlying policy, and the policy limits of the auto policy is the underlying retention.

It's a similar situation if someone is injured in your home. Your homeowners liability coverage is primary. It pays first until exhausted. If exhausted, your umbrella coverage would then kick in and start paying.

[joeorez]

"The ceding company may imclude umbrella policies in the business subject to the treaty.These policies are excess of an underlying retention and "drop down" if an underlying aggregate is exhausted.





I don't think the previous author addressed the drop-down feature of the aggregate.

If a primary GL policy covers $1Million per occurrence with an annual aggregate of $2Million in claims, and the umbrella policy drops down over this aggregate, this means after $2Million has been paid, the next dollar of loss is paid by the umbrella even if that next dollar is a small claim.

[Ali]

Many thanks to both Joeorez and Fanchise, very helpful responses indeed!