Coverage Explained

What is Buffer Liability Insurance?

Feb 13, 2024

The business world is rife with risks, and no insurance product seems to cover them all. Buffer liability insurance is a product used to fill in these gaps where a primary insurance product and an umbrella insurance product don’t quite meet.

Without buffer insurance, a business is exposed in certain policy areas. Buffer insurance is niche by nature because the area requiring coverage differs from business to business.

The best way to apply buffer insurance to a client is to partner with a wholesale insurer. Insurers like Novatae connect you with a vast network of insurance brokers and underwriters to find streamlined risk protection for any policyholder.

What is Buffer Liability Insurance?

Liability insurance protects against any area where your client might be found liable for damage to a person or their property. There is a wide range of liability products, including auto liability, workers’ compensation, and general liability for businesses.

All of these liability policies have limits. When a business reaches the maximum amount of coverage allotted by a policy, they are left personally liable for the rest of the owed amount. Buffer liability insurance does as the name implies by buffering the financial burden from the policyholder.

Buffer liability insurance kicks in when a primary and umbrella policy limit is reached. It ensures that one large claim can’t financially upset a company or individual.

How Buffer Liability Insurance Works

Buffer liability insurance works in different ways to bolster current insurance protection. Some of the benefits of buffer liability insurance include:

1. Layered Protection

Buffer liability insurance isn’t a singular product for any particular insurance claim. It is a product to be layered against an existing policy or policies to further protect a client from liability. In this way, clients are protected no matter where an existing policy is passed.

2. Excess Coverage

Buffer liability insurance isn’t always in play. It rests dormant until needed as a backup plan of sorts for existing coverage. This excess coverage kicks in when primary and umbrella maximum coverage amounts are hit. In this way, buffer liability insurance is something of a parachute.

3. Customization

As buffer insurance is such a niche product, it’s entirely flexible. Buffer insurance is designed to meet specific client needs, molding to fill gaps where primary coverage leaves them exposed. It can be used in a variety of settings but is most commonly employed in a business setting with general liability insurance products.

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Who Often Needs Buffer Liability Insurance?

Buffer insurance isn’t specific to one industry, but there are business categories that need it more commonly than others. Some of the businesses most in need of buffer liability insurance include:

Construction Companies

Construction companies experience a variety of intense on-the-job risks. As such, it’s difficult to find a primary insurance product that protects against everything. From worksite accidents to project delays, there are diverse risks construction firms face that may exceed primary policy limits. Buffer liability coverage mitigates the financial impact in these situations.

Manufacturing Entities

Manufacturing entities run into malfunctioning equipment, defective products, and delays in operations. Buffer liability insurance covers claims that surpass standard policies to safeguard against high-cost liabilities. In manufacturing, a single incident can jeopardize an entire company’s financial stability. Buffer insurance protects against this.

Real Estate Developers

Much like construction, in the world of real estate development, there are massive risks not only in terms of physical dangers, but also soft cost issues like market fluctuations. Buffer liability insurance covers claims outside of a standard policy amount to help developers manage risks without compromising a project.

Transportation Industry

In transportation, there are always risks, both in terms of accidents causing damage to people and vehicles and in cargo damage and loss. Buffer liability insurance protects your clients by covering gaps in primary insurance claims. Buffer insurance is particularly important in this high-risk sector.

Criteria for Purchasing Buffer Liability Insurance

While buffer liability insurance is a product worth having for many business owners, it’s not available to everyone. There are a few criteria required before a client qualifies for buffer insurance, including:

  • Complementary Nature: Buffer liability insurance isn’t a singular product for sale by itself. It is an add-on insurance product, requiring a primary policy to be in place. In this way, buffer insurance plays a complementary role.
  • Comprehensive Risk Assessment: Before your client can purchase a buffer insurance policy, they must complete a thorough risk assessment. Not all projects or industries are eligible. Sometimes, a primary policy has more than enough coverage to protect an entity from the majority of risks it will face. The risk assessment will determine whether buffer insurance is necessary.

Working with a wholesale insurer is beneficial in determining the level of risk a company is under and whether a buffer policy is right for them.

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Buffer Liability Insurance in Hard vs. Soft Markets

Buffer liability insurance is critical in both hard and soft markets, but it works differently in both. Let’s take a look at how each market uses buffer liability insurance to protect against chinks in the armor.

  • Hard Market Dynamics: Hard market rates go up, and conditions are in flux. Sometimes, a hard market is caused by natural disasters or hard economic changes like recession. In these hard markets, premiums are higher, underwriting criteria are stricter, and it often becomes difficult to secure adequate coverage. Buffer policies offer a chance for businesses to maintain robust protection against large claims despite limitations.
  • Soft Market Dynamics: Soft markets are more stable, rates flatten, and insurance products are more readily available. As premiums lower, it’s easy for businesses to assume risk lowers with them, but this isn’t always the case. Buffer liability insurance stands as a safeguard. In the event of a substantial claim, a business maintains protection.

Both markets require adequate protection to keep businesses safe from financial liability. Buffer liability insurance products are beneficial in both hard and soft markets for this reason.

Buffer Liability with a Wholesale Insurer

Wholesale insurance providers don’t work with cookie-cutter pre-made insurance products. They have access to a wide range of products from a wide range of providers. Wholesalers often have immense networks of insurers and underwriters to help craft custom and flexible insurance products.

Some of the benefits of working with a wholesale insurer include:

  • Wholesale Insurer Expertise: As wholesalers don’t work with any one industry or product, they have a vast knowledge of niche expertise and experiences. This helps them find insurance retailers with the right products for customers in even the most unique fields.
  • Customized Solutions: With this vast network of insurance connections, wholesale insurers can craft hand-tailored coverage. This includes buffer liability insurance products.

Choosing the right wholesale insurer is crucial to finding the best insurance product for your client. It helps to shop around and pinpoint the insurer with the broadest network to draw upon.

Buffer Liability Insurance With Novatae

Novatae is a wholesale insurance broker with a network of more than 490 global insurers. Novatae works with insurance products across a wide array of unique industries and roles. 
Interested in learning more about how a wholesale insurer can create the best buffer liability insurance product for your client? Contact us here.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.