Why We Sometimes Recommend a Higher Excess
What is an insurance excess?
An insurance excess is the amount you contribute when you make a claim. If your excess is $2,000 and your claim settles at $96,000, the insurer pays $94,000. The excess only ever exists on the day a claim is being paid, so it comes off a settlement rather than arriving as a bill of its own.
That last point matters more than almost anything else on this page, because most people picture the excess wrongly. They imagine a $5,000 excess as a $5,000 expense waiting to ambush them on a random Tuesday. It is not. It is a deduction from a much larger amount of money flowing towards you. Nobody pays an excess in a good week; you pay it in the week the insurer is rebuilding your roof, and it comes out of that cheque.
At Consolidated Insurance Brokers we spend a surprising amount of time talking clients into a higher excess than they first ask for. That sounds backwards for a business that gets paid to arrange insurance, and that is exactly why it is worth explaining. The logic below is the same logic we use on our own files.
How does your excess affect your premium?
A higher excess lowers your premium, because you are keeping more of each claim yourself and the insurer no longer prices in the small ones. On commercial property policies the saving can be real money, and you have a choice about what to do with it: pocket it, or spend it on cover that matters more.
Most articles stop here, at "raise your excess to save money". That advice is fine as far as it goes, but it treats the saving as the prize. In our experience the saving is not the prize. The prize is what the saving can buy: a sum insured that would actually rebuild your building.
Is a higher excess a good idea on a commercial building policy?
Often, yes. The honest rule of risk is simple: keep the losses you can afford, insure the losses you cannot. A $5,000 excess is a known, capped cost that only appears when a claim pays. An underinsured building is an unknown cost that can run to hundreds of thousands of dollars, and it is all yours.
Here is the uncomfortable pattern we see on commercial building insurance files. An owner chooses a low excess, say $1,000 or $2,000, because it feels safe. The same owner carries a building sum insured that has not been checked against real rebuild costs for years. Put those two choices side by side and the structure is exactly backwards: they are paying the insurer to cover the first couple of thousand dollars, money they could find tomorrow, while personally carrying the six-figure gap between their sum insured and what their building would really cost to rebuild.
They are insured for the loss they could afford anyway, and self-insured for the loss that would ruin them.
The fix is a trade. Move the excess up, and use the premium it frees to move the sum insured up. You give away a small, capped, claim-day cost and you buy back the catastrophic gap. One question cuts through every version of this decision:
If a $5,000 excess would hurt, what would a $187,000 shortfall do?
There is no answer to that question that favours the low excess. If $5,000 on claim day is genuinely unaffordable, then a six-figure rebuild shortfall is unthinkable, and the sum insured deserves the money more than the excess does.
Why would a broker recommend a higher excess?
Because the broker's job is the structure of your cover, not the comfort of the quote. A recommendation to raise your excess is a recommendation to spend your premium where it protects you most. It is also one piece of advice a broker cannot be accused of self-interest for giving, which is why we are happy to put it in writing.
Here is what that looks like on a real file, shared with the owner's details removed.
The owner of a Victorian warehouse had a break-in during the year that wrecked a roller door. The accepted builder's quote to repair that one door: $89,356.60. Not because doors are gold-plated, but because the quote ran to two pages before it reached the door itself: engineering design and inspection, demolition, blockwork, steel lintels, structural propping, permits, painting. With the professional reports and claim costs on top, the insurer's total came to about $96,000. That is what one corner of one wall costs to put back properly in 2026.
At renewal the building was insured for $880,000, and an independent building replacement estimate put the real rebuild cost at $1,067,000. We recommended he take the sum insured to the full valuation figure and fund it by lifting his excess from $2,000 to $5,000. The net cost of closing a $187,000 gap: just under $500 a year, less than $10 a week.
He accepted by return email the same morning. His words, not ours: when a roller door costs $96,000, it opens your eyes to what things cost these days. He had just watched one claim consume 11 per cent of his old sum insured, and the question "so what would the whole building cost?" answered itself.
Notice what the claim did in that story. It made risk concrete. For months after a claim, an owner does not need convincing that things cost more than they thought, because their own building just proved it. In our experience that is the moment honest advice lands best, which is why a claim on your file should always trigger a proper review of your sums insured, not just a bigger premium and an apology.
When is a lower excess the right choice?
Sometimes, and a broker who pretends otherwise is selling, not advising. If your claims pattern runs to several small claims a year, a higher excess taxes every one of them, and the arithmetic can genuinely favour keeping it low. The excess decision follows your claims reality, not a rule of thumb.
The other honest exception is cash. Some businesses truly cannot stand a $5,000 call at short notice, and no structure chart changes that. But notice what that admission really means: a business that cannot fund $5,000 on its worst day is carrying zero capacity to absorb an underinsurance shortfall, so the sum insured conversation matters more for that owner, not less.
Either way, the decision is yours. Our job is to put both structures in front of you with the real numbers on each side, in writing, and to record what you chose. What we will not do is quietly leave the higher-excess option off the table because someone assumed you could not afford it. In our experience that assumption is usually the adviser's nerves, not the client's balance sheet.
How do you work out the right excess and sum insured together?
Start from the number that anchors everything: what your building would actually cost to rebuild today. Until that figure is real, every excess decision is guesswork layered on guesswork. With a desktop building replacement valuation on the table, the trade becomes simple arithmetic you can see: what each excess level saves, and what that saving buys as cover.
The order of operations we use:
- Get the rebuild figure from an independent desktop valuation, not a guess indexed forward from the purchase price.
- Price the options honestly: the same policy at different excess levels, and what the premium difference funds as sum insured.
- Reduce the trade to plain numbers: dollars per week, and dollars of extra cover per dollar of premium. On the file above, just under $500 a year bought $187,000 of cover.
- You choose, with both sides of the arithmetic in front of you.
We commission the desktop valuation at no cost to you, using an independent provider, for our purposes as your broker, to inform the advice we give you. It becomes the anchor for every renewal after it. If your excess has never moved and your sum insured has never been tested, the odds are your structure is backwards, and finding out costs you nothing.
Get your desktop building replacement valuation
Frequently asked questions
Do I pay the excess before the insurer pays the claim?
Usually not as a separate upfront payment. On most property claims the excess is deducted from the settlement, or paid to the repairer as your contribution while the insurer pays the rest. On the warehouse claim above, the owner's choice was exactly that: the insurer's builder proceeds and the $2,000 excess goes to the builder, or a cash settlement arrives with the excess already deducted. Either way it only exists because a much larger amount is being paid on your behalf at the same time.
Does a higher excess protect me from underinsurance penalties?
No. The excess and the co-insurance clause are separate mechanisms. Co-insurance compares your sum insured to your real rebuild cost and can scale down a partial claim if the gap is too big, whatever your excess is. The excess trade helps because it funds a bigger sum insured, which is what actually fixes the gap. The clause itself is explained in The Co-Insurance Clause: What Every Building Owner Must Know.
Can different parts of my policy carry different excesses?
Yes, and they usually do. A commercial property policy typically carries a basic property excess, a separate liability excess, and sometimes higher specific excesses for perils like storm or flood, or for particular risks. The schedule is where the truth lives, and reading yours is a five-minute job worth doing this week.
Will raising my excess always save enough premium to matter?
No, the saving varies with the insurer, the property and your claims history, and on some files it is modest. That is exactly why we quote the options side by side rather than promising a number here. The point of the trade is never the saving itself; it is what the saving buys.