What Is a Monoline Policy?
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 (BOP) but excluded for a certain reason.
For example, if you purchase a package policy, but the underwriter excludes product 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 from the insurance company that underwrites the excess general liability.
5 Examples of Monoline Insurance Policies
According to the two definitions above, a monoline policy could potentially encompass any coverage type. But there are a few common scenarios we see when it comes to this type of policy. Here are five real-world examples:
General Liability Insurance: Toy Manufacturer
A growing toy manufacturer purchased high-risk general liability coverage from a specialized carrier. However, this insurance company didn’t offer property coverage, so the toy manufacturer needed to seek property insurance from a different provider. In the end, the manufacturer purchased a monoline general liability policy and a monoline property insurance policy from two different insurance companies.
Employment Practices Liability Insurance: Technology Company
A large tech company opted for a monoline employment practices liability insurance (EPLI) policy due to their size and high rate of growth, which can often lead to employment-related disputes. The typical EPLI coverage provided in package policies did not provide the extent of coverage the company desired, so they chose to find a specialty insurance provider that offered the most comprehensive coverage available.
Professional Liability Insurance: Financial Consultancy
Although professional liability can be found on many general liability policies, the financial industry is high risk. One financial advisory firm with particularly high-stakes, advice-driven services was unable to find a policy that included enough professional liability coverage for what they needed. They chose a monoline policy with higher coverage limits to adequately cover their risks.
Workers Compensation Insurance: Roofing Company
Due to the high risk of workplace accidents in the roofing industry, some general liability insurance policies don’t cover workers compensation. One roofing company had to seek coverage from a specialty insurance company that focused on high-hazard workers compensation, eventually choosing a monoline workers compensation insurance policy from a different provider than the one issuing their general liability policy.
Umbrella/Excess Liability: Engineering Firm
A fire sprinkler system engineering firm needed a $5 million umbrella policy to meet contractual requirements for a customer. The firm’s insurance agent went to their primary general liability insurance company and requested a quote, but the provider declined, saying that writing both policies created too much exposure for them. The engineering firm had to purchase a monoline umbrella policy from a different insurance company.
Advantages Of Monoline Insurance Policies
Generally, companies purchase monoline insurance policies when they can't find what they need or want in a standard package or BOP. Here are a couple of reasons why.
Fill In Coverage Gaps
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.
Cover Large Organizations
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.
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?
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’ll most likely find your solution in a monoline insurance policy.
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.
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Disadvantages Of Purchasing A Monoline Policy
While monoline insurance is often necessary, it does have a few disadvantages.
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’s also a more standardized product that they can better optimize pricing for. A monoline policy doesn’t have this multiline benefit and generally costs more than a packaged solution.
More Complicated Claims Handling
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 we’ve seen in a claim situation. Generally, your claim will still get resolved, but it can take longer and is often more complicated.
Potentially More Taxes And Fees
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.
The Bottom Line
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.
Think you might need a monoline policy? Interested in customized packages? Contact us to learn more about what insurance policy—or policies—might be right for you.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.
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