April 20, 2020
A monoline insurance policy (also called a stand-alone insurance policy) provides coverage for a risk that is typically included under a package policy or a business owners policy, but excluded for a certain reason.
For example, If you purchase a package policy, but the underwriter excludes products liability - you would need a monoline products liability policy.
A monoline policy can also refer to insurance policies that are not typically part of a package policy, but are offered with no "supporting line" by the same insurance carrier.
For example, a commercial umbrella liability policy is not usually bundled in with other coverages. However, it would be considered a monoline policy if the insurance company that underwrites your general liability is different than the insurance company that underwrites the excess general liability.
Generally, companies purchase monoline insurance policies when they can't find what they need or want in a standard package or business owners policy (BOP policy).
Here are a couple of reasons why:
Many general liability and package policies will exclude extreme risks and require that you purchase a monoline policy to fix the coverage gap.
For example, if you have an aerospace manufacturing company, you most likely purchase a package policy that covers your premises liability, contents, and property. But it will exclude products liability coverage. So, to get a comprehensive liability insurance program, you will need to purchase a general liability policy and a monoline products liability policy to be adequately covered.
If you run a large organization, chances are you cannot get everything you need on a packaged policy. Insurance companies want to limit their exposure to your large liability or property risks and will not want to offer coverage for everything themselves. If an insurance carrier did attempt this, a single claim could greatly impact them.
For example, insurance companies limit their exposure to large amounts of property. To be fully covered, you might have to purchase a primary property policy for the first 10% of your total property value, and then purchase three monoline property policies that increase your property limit to 100%. The same strategy is used with liability, too. This is called “insurance coverage towers” or “excess layering.” It leverages monoline policies to diversify the risk among several insurance companies.
You can learn more about excess layering in our insight "What Is Excess Insurance?"
The more packaged or bundled your insurance program, the less customizable the coverage actually is. If you need special wording on a policy or coverage for a risk that typical insurance policies do not cover, you will most likely find your solution in a monoline insurance policy.
One of the most common reasons businesses need to purchase a commercial monoline insurance policy is because they are unique. Traditional underwriters use statistical averages to determine rates, but if there are no other businesses like yours, how can they do that? Monoline underwriters, on the other hand, are often specialists in the coverage they underwrite. They have a greater ability to underwrite a unique business due to their expertise, oftentimes without the usual supporting data models.
According to the two definitions above, a monoline policy could potentially encompass any coverage type. If your broker refers to your monoline policy, he or she could be referring to the following coverages:
One of the primary disadvantages of purchasing a monoline policy is that it is usually more expensive.
In a packaged policy, the insurance company can offer lower rates by diversifying their risk among many different types of coverage. It is also a more standardized product that they can better optimize pricing for. However, a monoline policy does not have this multiline benefit and generally costs more than a packaged solution.
When multiple insurance companies are insuring the same business, there can be finger-pointing when it comes time to pay an insurance claim. Although some claims fall clearly in the terms of a single policy, most are more complicated. Did the fire result from an ongoing operation or a completed operation? Is the fraudulent wire transfer a result of social engineering or traditional theft? The package policy includes employee benefits liability, but so does the monoline management liability policy, so which policy pays?
These are just some of the questions that we have seen in a claim situation. Generally, your claim will still get resolved, but it can take longer and is often more complicated.
If you are purchasing excess and surplus insurance, you might have to pay wholesale fees on each policy you purchase. These fees range from $150 to $1,500 per policy depending on the complexity of the policy. If you purchase numerous policies, these fees can increase your cost of insurance without providing any significant benefit to your program.
In the current insurance market, you might require a monoline insurance policy to feel confident that your business is covered correctly.
There are a couple of downsides that you should be aware of, such as the price, the complexity, and the claims service. But it is still an excellent tool that your business can leverage to transfer large amounts of risk and protect your balance sheet in difficult times.
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