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How a Buffer Layer Can Save You Money and Grief
Did your SIR go up and you didn’t want it to? Try a Buffer Layer approach.
Last year, public entities across America saw an increase in their SIR’s and many don’t have the loss reserves to support the higher SIR. This leaves these public entities extremely vulnerable in a large loss situation. Should a large loss scenario occur, the risk manager would have to figure out how to externally fund the higher SIR, either with higher taxes or by floating a bond…Not exactly what a risk manager is excited to face with all the other challenges of today.
To counteract this higher SIR move by the standard public entity companies, we are seeing the emergence of a specialty market that offers “Buffer Layers”. These Buffer Layers allow the client to keep the same lower SIR they prefer and are funded for.
Here’s your typical Buffer Layer scenario: 2008 SIR set at $2mil, 2009 renewal offered at a $4mil with some sort of discount. The client isn’t funded for the $4mil SIR, so we provide a $2mil X/S $2mil Buffer Layer. These Buffer layers do cost money, but they have a decent payback period of less than 10 years in most cases. Usually, the client uses the discount from the insurance placement, and other available resources to purchase the buffer layer.
The emerging companies providing the $1mil or $2mil layers are specialized and use a more primary loss pick rating system approach. These buffer layers resemble insurance that you’re more likely to use than the excess insurance of today, which companies are betting you don’t use…With the use of buffer layers, it is really a win / win situation. You get the SIR you financially need at a price you can handle and avoid the funding issue during a large claim which could lead oversight of your department decision making powers.
GIE has been a specialized force in the public entity world for nearly 20 years and always stays top of emerging trends in the insurance world. Call us today to learn more about the use of this emerging “Buffer Layer” technique!
January Newsletter
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