A shared aggregate in a master/group policy effectively limits the number of Customers who can claim. It is clearly unfair if a Customer misses out on a claim payment only because they are claimant number ‘11’ rather than number ‘10’ where claimant number ‘10’ has exhausted the aggregate limit.
Shared aggregates are therefore not permitted in master/group policies.
Similarly aggregate deductibles are not acceptable where claims will only be paid once a shared deductible is exhausted.
It should be noted that it is acceptable to use aggregate limits and deductibles at individual customer level.
There are two exceptions to the prohibition on aggregates:
- Shared aggregates are permitted in corporate travel policies purchased by employers.
- Aggregate event limits for employer group schemes are permitted in relation to catastrophe events e.g. terrorist attack, plane crash provided that the limit is only likely to be reached in an event which involves the majority of customer employees. In such a scenario if the event limit is reached we would generally expect that the claim payment should be distributed pro rata between the affected customer employees.
For the avoidance of doubt these exceptions do not apply to master/group policies that employees can opt into and pay for e.g. as part of flexible benefits and such master/group policies remain subject to the prohibition on shared aggregates.
Managing agents must take steps to ensure that Customer employees are made aware of pertinent information regarding aggregate limits, including event limits, so that they understand the limitations on their coverage e.g. include a requirement in the master/group policy that the master/group policyholder makes the relevant information available to employees, preferably with agreed documentation attached to the master/group policy.
Managing agents are responsible for ensuring good customer outcomes. Aggregate and event limits should be reviewed from a customer outcomes perspective through the managing agent’s product governance arrangements e.g. review by POG. Particular consideration should be afforded to customer outcomes where an employer group is small. In such cases, an aggregate, although designed to come into effect only when the majority of Customer employees are affected by a large catastrophic event, may be breached by for example a car accident where employees are travelling together.
More broadly, Lloyd’s will consider exemptions from the prohibition on shared aggregates on a case by case basis. Some of the factors we have taken into account when considering such exemptions have been the following:
- whether the arrangement was in the best interests of the Customer
- the possibilities for writing the business in another way if the exemption was not granted
- the likelihood of the aggregate being breached
- whether reinstatement provisions were in place
- the financial sophistication of the Customers involved (including whether independently advised)
All decisions are made taking into account the specific circumstances of each arrangement so we cannot provide any specific rules around when a shared aggregate will be permitted. However, we will generally look for the inclusion of at least one full reinstatement of the aggregate limit and evidence that there is only a minimal chance of the aggregate being breached.