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Deductible Buy-Down Options Can Help with Unexpected Claims Costs

August 05, 2019 Michelle Jennings and Mary Barrett

Over the past five years, the TASB Risk Management Fund (Fund) has paid more than $210 million in weather-related property claims, $180 million of which was due to wind and hail damage. The Fund is not alone—weather claims have severely impacted all types of organizations across Texas in recent years. As a result, property coverage deductibles and rates have risen sharply in recent years. In the past, $10,000 wind/hail deductibles were the norm, but today it is common to see six-figure deductibles. Some carriers even require percentage-based deductibles as high as five percent.

While some schools are having difficulty finding property coverage at all, others are struggling to meet the financial obligations that come along with a higher property deductible. One solution to help manage a higher deductible is to purchase a “deductible buy-down."

Through its strong property market relationships, the Fund has secured a wind/hail (WHH) deductible buy-down option for each of its renewing Property members. The deductible buy-down option provides additional coverage to help manage the impact of higher WHH deductibles in the event of a covered loss. While the Fund has secured an option for its members, there are other providers and insurers who may offer this type of coverage product as well.

Questions to ask before purchasing a deductible buy-down

Before you decide to purchase deductible buy-down coverage from the Fund or any other provider or insurance company, it is important to do your homework and ask the right questions. Below are tips, questions to ask, and other considerations for deductible buy-down options. 

What is a deductible buy-down?

A deductible buy-down, sometimes referred to as a buyback deductible, can be an endorsement or separate policy that reduces the deductible that the covered entity pays in the event of a claim. An additional premium or contribution is charged for the additional coverage.

Will I have to pay the full deductible and be reimbursed?

When searching for deductible buy-down options, make sure providers offer as transparent of a process as possible to minimize your responsibilities in the event of a claim. For example, the Fund will process your claim at the lower deductible level so that you have an easy and seamless experience and will not have to manage two claims—the damage claim and a separate buy-down claim. If you secure a deductible buy-down from an insurer or entity other than your primary property coverage provider, you will likely have to report and manage separate claims in the event of a loss.

Who is responsible for the insurance recovery?

It is important to make sure there are no gaps in claim services. Look for a provider who will help you through the process. If you are purchasing a buy-down from the Fund, the Fund will manage the claim recovery on behalf of the member. Members will not have to deal with the burden of handling two claims.

How does the deductible buy-down fit with my current property coverage?

As you are researching other options, make sure there are no unique exclusions or coverage limitations outside of your current property coverage that would impact your ability to use the buy-down coverage. With the Fund’s buy-down, if the loss is covered by the Fund, the deductible buy-down will be applied to the loss. There are no gaps in coverage between the Fund’s property coverage and the deductible buy-down. That may not be the case for buy-downs that are secured from providers other than the primary property coverage provider. Make sure to confirm that the underlying property coverage will be applied as written to make sure the deductible buy-down coverage applies as well.

How many times can I use the deductible buy-down?

The Fund’s deductible buy-down is provided on a per occurrence basis so if there is more than one covered loss during the coverage period, the buy-down could be applied again. Other providers may provide coverage with an annual limit meaning in the event of a severe loss, the buy-down could be only accessed once during a coverage period.

Deductible buy-downs, especially when priced competitively, are an excellent tool for managing the financial impact of significantly larger wind/hail or other deductibles. There are various markets for this type of coverage but availability to an individual organization may be impacted by loss history, exposure size, or underlying building and roof conditions. Each member of the Fund’s Property program will be provided a quote for a wind/hail deductible buy-down. The Fund’s coverage is optional and intended to provide members with more tools for managing increasing property coverage costs. If you have questions about deductible buy-down coverage, please contact your marketing consultant.

Tagged: coverage, renewals