Unimutual Aggregate Caps - How do they Work?
An aggregate cap allows a Member to take a larger retention than they would otherwise be comfortable with, and to budget for below-retention loss costs, whether arising from below-retention claims or from above-retention claims.
By way of example, we shall look at a Member with a $100,000 retention and an aggregate cap of $250,000 for loss costs between $10,000 and $100,000. Loss costs up to $10,000 are entirely unprotected. We shall use this example throughout this document. If the Member has a good year and the aggregate is not exceeded, it has money left over. However, if it has a bad year, the aggregate protects it against a blow-out in loss costs between $10,000 and $100,000.
The retention and aggregate cap set out above would be described as follows in the Member's Property Schedule:
| $100,000 each and every successful claim made for Protection. Including an aggregate cap of $250,000 for claim costs between $10,000 and $100,000, the retention reduces to $10,000 once the aggregate cap is reached. |
In considering how the aggregate cap works, we need to look at claims in the following categories:
- Claims below $10,000. These claims are funded by the Member and have no impact on the aggregate cap.
- Claims between $10,000 and $100,000. These claims are funded by the Member, until such time as the aggregate cap is exceeded. Although the entire claim is funded by the Member, the amount by which the claim exceeds $10,000 is allocated towards the aggregate cap, and a running total of losses falling into the aggregate cap is kept.
- Claims exceeding $100,000. These claims are paid by Unimutual, subject to a $100,000 retention, until such time as the aggregate cap is exceeded. Although the claim is subject to a $100,000 retention, $90,000 is allocated towards the aggregate cap.
So, how does this work in practice?
We shall now look at a claim scenario, which uses the same retention and aggregate cap as featured above.
- The Member suffers a loss valued at $50,000. The Member funds the entire claim, but $40,000 is allocated towards the aggregate cap. The aggregate cap now stands at $40,000.
- The Member suffers a loss valued at $8,000. The Member funds the entire claim, and no part of it is allocated towards the aggregate cap. The aggregate cap now stands at $40,000.
- The Member suffers a loss valued at $140,000. The claim is paid by Unimutual, subject to a $100,000 retention. $90,000 is allocated towards the aggregate cap. The aggregate cap now stands at $130,000.
- The Member suffers a loss valued at $80,000. The Member funds the entire claim, but $70,000 is allocated towards the aggregate cap. The aggregate cap now stands at $200,000.
- The Member suffers a loss valued at $120,000. Only $50,000 is required for the aggregate cap to be exhausted, and this component of the claim is funded by the Member. In addition, the first $10,000 of the loss is funded by the Member, as this amount always remains unprotected. Thus, the claim is subject to a $60,000 retention, and Unimutual pays the balance, being $60,000. The aggregate cap has now been exceeded.
- The Member suffers a loss valued at $45,000. This claim is paid by Unimutual, subject to a $10,000 retention.
This scenario can be represented in table form as follows:
| Aggregate application for claims | ||||||
| Claim 1 | Claim 2 | Claim 3 | Claim 4 | Claim 5 | Claim 6 | |
| Value of claim ($) | 50,000 | 8,000 | 140,000 | 80,000 | 120,000 | 45,000 |
| Amound paid by Member ($) | 50,000 | 8,000 | 100,000 | 80,000 | 60,000 | 10,000 |
| Amount paid by Unimutual ($) | Nil | Nil | 40,000 | Nil | 60,000 | 35,000 |
| Amount counted towards Aggregate ($) | 40,000 | Nil | 90,000 | 70,000 | 50,000 | Nil |
| Running total of Aggregate ($) | 40,000 | 40,000 | 130,000 | 200,000 | 250,000 | 250,000 |
It is important to note that the outcome for the Member is the same, irrespective of the order in which losses occur or claims are settled.
To enable us to keep track of a Member's aggregate cap, Members with aggregate caps are encouraged to submit documentation relating to all below-retention claims which contribute towards the aggregate cap. In the above example, this would be claims 1 and 4. Although no payment is made by Unimutual in respect of these claims, we still need to ensure that only those costs which are covered by the Property protection are allocated towards the aggregate cap.
