What is a Limit of Indemnity? When you’re insuring physical assets, such as a building or computer equipment, the sum is often based on the value to replace or reinstate the property – typically referred to as the Sums Insured.

But when insuring a company or director’s legal liability (like Professional Indemnity or Public Liability), there isn’t a defined amount for what a worst-case loss would be. Theoretically, it’s unlimited.

Instead, legal liability insurance agrees a Limit of Indemnity, which reflects a balance between the anticipated worst-case scenario, and the risk appetite of the company and its board.

Not all limits are equal, and there are nuances to consider when selecting the limit that suits your venture:

• Limits might include legal defence costs within the limit selected, whereas others add this on top, giving a slightly better amount of cover
• Limits can be provided on an “aggregate” or an “any one claim” basis

We’ll unpack what an aggregate and an any one claim basis means, and share our recommendation for your business.

Aggregate basis

An aggregate basis is more restrictive. The limit provided is both:

• The maximum that would be paid out in the event of a claim
• The maximum that would be paid out for the entire policy year

This can create serious problems if the business suffers multiple claims within 12 months. For instance, imagine you have a Professional Indemnity policy with an aggregate limit of £1,000,000. One month into the policy year, you claim for £700,000 – leaving you with only £300,000 of cover until the policy renews in 11 months.

However, after another six months, you make another claim for £700,000 – making the total claim amount £1,400,000 over the year. With a £1,000,000 aggregate limit, the company would be exposed and uninsured for £400,000 of the loss.

Aggregate limits aren’t ideal. So, where available and economically viable, we recommend taking the any one claim limit basis.

Any one claims basis

An any one claims limit – also known as a per-occurrence limit – reflects the maximum amount an insurer would pay out for an individual claim, like the aggregate limit. However, unlike the aggregate basis, it doesn’t reflect the maximum amount paid out during the policy period.

If you took the same example used above and applied it to an any one claim limit, there’s a huge difference. The any one claim limit is £1,000,000 and you make two £700,000 claims within the 12-month period. As the limit resets after each claim, you’re not liable for that final £400,000 loss.

An any one claim basis doesn’t just protect against a large loss, but also against suffering multiple losses in the same year.

Aggregate or any one claim?

At RiskBox, we review dozens of insurance programmes every month – and it’s frightening how frequently businesses are unnecessarily insured on an aggregated basis. Generally speaking, this happens when the business goes directly to the insurer, who seemingly takes advantage of their lack of awareness and sells an inferior product.

Unfortunately, this isn’t illegal – despite being unethical in our view. Therefore, it’s unlikely to lead to regulatory sanctions. We recommend you speak to a specialist independent broker when looking for a product to protect your business. Most brokers are objective, and don’t have a direct incentive to reduce your protection.

Speak to Riskbox

If you’d like an independent opinion on the right product for your business, get in touch with our team through our online contact form, or call 0161 533 0411 today.

Photo by Pablo García Saldaña on Unsplash