Almost every travel policy carries an excess, a fixed amount deducted from a settlement. Its purpose is to remove small claims rather than to reduce the size of large ones.
Handling costs dominate small claims
Assessing any claim requires staff time, document review and correspondence, and that cost is broadly similar whether the claim is small or large.
For a small claim the handling cost can approach the payout itself, which makes such claims uneconomic to process.
An excess set above the typical small claim removes them from the system, and the saving is passed into lower premiums for everyone in the pool.
It changes behaviour as well as arithmetic
A policyholder bearing the first portion of any loss has a direct interest in avoiding minor incidents and in not claiming for trivial amounts.
Insurers describe this as aligning incentives, and it is the same mechanism that operates in motor and household cover.
The effect is strongest on high-frequency, low-value claims such as minor damage, which are precisely the claims that clog the system.
How it is applied varies between policies
Some policies apply one excess per claim, while others apply it per section, so an incident affecting both baggage and medical cover attracts it twice.
Family policies may apply the excess per person rather than per policy, which can multiply it when several travellers are affected by one event.
The wording states which basis applies, and it is one of the more consequential differences between products that otherwise look similar.
Buying it down is a priced trade
Many insurers offer a zero-excess option for an additional premium, and that premium is calculated from the expected value of the claims it lets through.
Over many trips the option costs roughly what it pays out, plus the insurer's margin and the additional handling cost it reintroduces.
Its value therefore lies in cash-flow certainty rather than in expected saving, which is a different reason to buy it.
Where the excess is most visible
Baggage claims are where it bites hardest, since the excess is deducted after depreciation has already reduced the settled value of the items.
Vehicle hire creates a parallel version, where the rental company's damage liability functions as an excess and is separately insurable.
Medical claims often show it least, because the sums involved are large enough that a fixed deduction barely changes the outcome.