Compulsory excess

Category: Motor · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed 2026-06-05

Compulsory excess

A compulsory excess is the portion of an insured loss that the insurer requires the policyholder to bear before the insurer’s liability is engaged; unlike voluntary excess it is set by the insurer at proposal and cannot be removed by the policyholder.

Category: Motor Also known as: standard excess, mandatory excess First codified: UK market practice; no statutory definition Related legislation: Financial Conduct Authority Handbook, ICOBS Apex Wiki link: /wiki/compulsory-excess/

Definition

A compulsory excess is the portion of any insured loss that the insurer requires the policyholder to bear before the insurer’s liability to indemnify is engaged. It is set by the insurer at proposal stage on the basis of the driver, vehicle and risk profile, and unlike a voluntary excess it cannot be removed or reduced by the policyholder [1].

In UK retail motor insurance, compulsory excesses are typically structured as a base excess (often £100 to £250) plus additional excesses for higher-risk circumstances. Common additional compulsory excesses include:

• Young driver excess — applied where the driver is under a defined age (usually 21, 25 or 30).
• Inexperienced driver excess — applied where the driver has held a full UK or equivalent licence for less than two or three years.
• High-value vehicle excess — applied to vehicles with a list price above a defined threshold.
• Performance vehicle excess — applied to vehicles in higher insurance groups.
• Theft excess — separate, higher excess applying to theft and attempted theft claims.
• Fire excess — separate excess for fire claims (often lower than collision).
• Glass and windscreen excess — separate, smaller excess (commonly £75 to £150) for glass claims.

The compulsory excess is added to any voluntary excess selected by the policyholder, and the combined sum is deducted from the insurer’s payment.

Legal / Regulatory basis

Compulsory excesses, like voluntary excesses, have no statutory definition. They are governed by the policy wording and regulated under the Financial Conduct Authority Handbook:

• ICOBS 5.2.2R — appropriate information to enable the customer to make an informed decision. The insurer must disclose the compulsory excess at proposal stage in a way that allows the consumer to understand its impact [2].
• ICOBS 6.1.5R — clear, fair and not misleading information. The Insurance Product Information Document (IPID) and policy summary must list compulsory excesses applicable.
• ICOBS 8.1.1R — claims handling. Excesses must be applied consistently with the policy terms.
• Consumer Duty (PRIN 2A) — products must provide fair value. Excess structures that are disproportionate to claim severity may raise fair value concerns.

The Road Traffic Act 1988 section 148 voids policy conditions that would defeat a third party’s claim; for that reason, compulsory excesses are applied to own-damage cover only, not to third-party liability cover [3]. The insurer pays the third party’s claim in full and recovers the excess from the policyholder if entitled.

Consumer disclosure at proposal is governed by the Consumer Insurance (Disclosure and Representations) Act 2012; non-consumer disclosure by the Insurance Act 2015 [4] [5]. Misrepresentation that, if known, would have led the insurer to impose a higher excess may, under the Consumer Insurance Act, allow the insurer to apply a ‘proportionate remedy’ rather than to avoid the policy outright, including increasing the excess retrospectively [4].

How it works in practice

The compulsory excess is fixed by the insurer’s underwriting rules at the point of quotation. Where multiple compulsory excesses apply (e.g. young driver plus inexperienced driver plus high-value vehicle), they are normally cumulative, although some insurers cap the combined compulsory excess at a defined maximum.

At claim stage the compulsory excess is deducted from the indemnity in the same way as the voluntary excess. The insurer’s claim settlement letter sets out the calculation: gross settlement, less compulsory excess, less voluntary excess, equals net payment.

A particular feature of compulsory excesses is their application by peril:

• Collision damage — base compulsory excess (e.g. £150).
• Theft and attempted theft — typically a higher compulsory excess (£200 to £500 or more).
• Fire damage — usually a lower or equal excess (e.g. £100).
• Glass damage — separate, smaller excess (often £75 for full replacement, £25 for repair).
• Driver-specific compulsory excess — applies where the particular driver at the time of the incident falls within the risk category.

The driver-specific compulsory excess is significant in practice. A policy listing two drivers — for example, a parent (age 50) and a child (age 19) — may have a base compulsory excess of £150 applicable to the parent and £150 plus a £450 young/inexperienced driver excess applicable to the child. A collision while the parent is driving incurs the £150 excess; the same collision while the child is driving incurs the £600 combined compulsory excess (plus any voluntary excess).

Some compulsory excesses are ‘pure’ (the policyholder must pay regardless of fault); others are ‘fault only’ (only payable for fault claims). Practice varies.

For brokers, the compulsory excess structure is a material part of the demands-and-needs analysis under ICOBS 5. A quotation that returns a lower premium because of a higher compulsory excess is not necessarily better value for a customer who lacks the means to pay the excess in the event of a claim.

Common variations

The compulsory excess structure varies significantly by line of business and by insurer:

• Motor. Base excess plus driver-specific, vehicle-specific and peril-specific excesses.
• Home. Compulsory excesses apply by section (buildings, contents) and by peril, with a typically higher compulsory excess for subsidence (often £1,000) and for escape of water.
• Travel. A single compulsory excess per insured person per claim, often £75 to £150.
• Commercial. Compulsory excesses scale with sum insured and are often imposed by the reinsurer’s treaty terms rather than the direct insurer’s underwriting choice.

In some specialist motor products (high-value vehicles, classic cars, fleet) the compulsory excess may be presented as a single figure with no separate driver-specific addition; in others (young driver markets, convicted driver markets) it may form a complex multi-layered structure.

In international and reinsurance terminology the compulsory excess is called a ‘deductible’ or ‘self-insured retention’. In reinsurance and large commercial property, an aggregate deductible — the total amount the insured must bear across all claims in a year before reinsurance responds — operates on similar principles at portfolio level.

The Financial Ombudsman Service publishes regular decisions on excess disputes, particularly where the consumer alleges they were not made aware of an additional driver-specific excess at proposal stage [6].

Example

An illustrative example: a 19-year-old is added as a named driver to a parent’s policy. The base compulsory excess is £150. The insurer’s underwriting rules impose an additional £400 young driver compulsory excess and a further £200 inexperienced driver excess when the young driver is at the wheel. The parent selects a £200 voluntary excess.

When the parent drives, the applicable excess on a fault collision is £150 (compulsory) plus £200 (voluntary), totalling £350. When the 19-year-old drives, the applicable excess is £150 + £400 + £200 + £200, totalling £950.

The 19-year-old is involved in a fault collision causing £3,000 of damage to the insured vehicle. The insurer pays the repairer £2,050 (£3,000 less the £950 combined excess). The 19-year-old’s parent pays the £950 directly to the repairer.

If the same incident occurs while the parent is driving, the insurer pays £2,650 and the parent pays £350. The differential between the two reflects the additional underwriting risk the insurer attributes to the inexperienced driver and is intended to align cost with risk. Figures are illustrative only.

See also

• /wiki/voluntary-excess/ — buyer-elected excess
• /wiki/motor-insurance/ — the parent product
• /wiki/comprehensive-motor-insurance/ — widest cover tier
• /wiki/third-party-fire-and-theft/ — intermediate tier
• /wiki/no-claims-discount/ — claims-free rating
• /wiki/icobs/ — the conduct rulebook
• /wiki/consumer-insurance-disclosure-and-representations-act-2012/ — consumer disclosure duty
• /wiki/road-traffic-act-1988/ — the governing statute

References

1. Association of British Insurers, glossary of motor insurance terms. https://www.abi.org.uk/products-and-issues/topics-and-issues/motor-insurance/
2. FCA Handbook, ICOBS 5 and 6. https://www.handbook.fca.org.uk/handbook/ICOBS/
3. Road Traffic Act 1988, section 148. https://www.legislation.gov.uk/ukpga/1988/52/section/148
4. Consumer Insurance (Disclosure and Representations) Act 2012. https://www.legislation.gov.uk/ukpga/2012/6
5. Insurance Act 2015. https://www.legislation.gov.uk/ukpga/2015/4
6. Financial Ombudsman Service, decisions database. https://www.financial-ombudsman.org.uk/decisions-case-studies/ombudsman-decisions

This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.

Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.