Insurance companies use the excess payment as a tool to discourage people from starting claims that are for minimal amounts. They also use it as as a way of discouraging fraudulent insurance claims.
Deterring claims for minimal amounts
What are minimal amount claims?
A claim is usually considered a ‘minimal amount claim’ if the cost of the damage is less than your excess payment. For example, claiming for a repairable £100 dent with a £300 excess.
In regards to damage, these usually consist of examples such as scratches, minor dents, and cracked lights.
More significant damage involving structural components or theft of the car would not be considered minimal.
Why an excess is used to deter minimal amount claims?
Administrative costs
Every claim, no matter how small, creates administrative costs for an insurance company. This includes processing paperwork, assigning claims adjusters, verifying information, and potentially negotiating settlements.
If the claim amount is minimal, an insurer might end up spending more on processing it than they’d pay out in the settlement. In other words, the operational cost to process a minimal value claim will usually outweigh the worth that the claimant is receiving.
The excess ensures that the insurer isn’t losing money on processing very small claims.
So, they use the excess as a ‘threshold’
The excess essentially acts as a financial threshold. If a policyholder knows their car insurance excess is £300, they’re far less likely to file a claim for a £100 dent. This way, the excess directly deters small, potentially unnecessary claims.
Reducing claims frequency
As a result of deterring minimal amount claims, the excess works as a tool to reduce minimal claims frequency.
Due to the impractical administrative and operational costs of a minimal claim, processing them in high quantities would be financially unfeasible for insurance companies.
The excess reduces the number of low-value claims they need to process, which cuts down on operational costs significantly.
This helps to make premiums more affordable
By lowering the administrative burden and reducing the overall claims payouts, insurers can keep premiums more affordable for everyone. The excess helps make insurance accessible to a wider pool of people.
Allows insurers to focus on significant loss
Primarily, insurers are in place to protect against major, unpredictable losses.
The reduction of minimal value claims allows insurance companies to focus their resources on more financially significant claims.
Auto Claims Assist don’t charge an excess
As an accident management company, we claim directly through the third-party insurance company. This avoids your own policy entirely, which avoids having to pay your own excess fee to make a non-fault claim.
Still got questions about your non-fault accident excess?
Speak to our team now on 0330 128 1407 or start your claim online here
Deterring fraudulent claims
What is a fraudulent claim?
A fraudulent claim, in the context of car insurance, is when someone makes a false or exaggerated claim to their insurance company. Common examples include:
- Staged accidents: This involves deliberately causing or manipulating an accident to make it look like someone else is at fault.
- Exaggerated damage: Inflating the extent of the damage to a vehicle to receive a larger payout from the insurance company.
- Filing a claim for a pre-existing condition: This could involve claiming damage that existed before the car was insured, or claiming that existing damage was caused by a recent incident.
- Fake theft: Reporting a car theft that never actually happened in order to collect on the insurance payout.
These actions are illegal and can have serious consequences, including criminal charges, policy cancellation, and difficulty obtaining car insurance in the future.
How an excess is used to deter fraudulent claims?
The excess makes fraud claims more risky
By enforcing an excess payment before making a claim, insurers create financial risk for fraudsters.
Loss of investment
If a fraudulent claim fails, the fraudster loses the amount they paid as the excess. This creates a direct financial disincentive and increases the potential consequences.
Insurers have highly experienced fraud departments
Insurers have highly experienced fraud departments, staffed by specialists with expertise in investigation, law, claims analysis, and data analytics.
They use advanced tools and techniques to detect suspicious activity.
Reduced reward
Even if the fraudster’s claim succeeds, the excess significantly reduces the payout amount. This undermines the potential profit and makes the risky behaviour less attractive.
