Why is a compulsory excess of £100 applied to an insurance policy?

The application of a compulsory excess of £100 to an insurance policy primarily serves to discourage small claims. By including this excess, policyholders must bear a portion of any loss, which encourages them to think carefully before making claims that might be relatively minor or not significantly impactful financially. This mechanism effectively reduces the number of trivial claims submitted to the insurer, which can be administratively burdensome and costly to process.

Furthermore, discouraging small claims helps maintain the overall premium levels for policyholders by keeping the insurer's costs down. When small claims are minimized, it also contributes to the sustainability of the insurance pool. In essence, the compulsory excess serves as a tool to promote responsible claiming behavior among policyholders while ensuring that insurance remains affordable and viable in the long term.

The other options, while they present different motivations, do not directly tie into the primary purpose of a compulsory excess in the context of insurance claims management.