Hurricane Deductibles Raise Ire of Property Owners

To stave off claims losses, many insurers have recently added hurricane and wind deductibles to their property and casualty policies. As an insurance executive, you have to realize that these deductibles are becoming increasingly unpopular with your clients. Especially when you consider that some insurers have raised these deductibles as high as 5 percent of the covered value of the property. In Florida, these deductibles can be as high as 10 percent. On a $300,000 home, you're asking a devastated homeowner to fork over $30,000 before your pay out begins. That’s not the way to create good will with your clients. And it makes for bad press in a media environment that already vilifies “big, bad insurance companies.”

You also have state government sympathizing with property owners. When the National Hurricane Center declared Sandy a “post-tropical storm” just before it made landfall, governors in New Jersey, New York, Connecticut and Maryland told insurance companies that insurers couldn't enforce hurricane deductibles. A typical hurricane deductible of 2 percent of a home’s insured value often exceeds a standard dollar deductible.

In Maryland, hurricane deductibles were not allowed for Sandy-related claims. A bulletin issued by Maryland's Insurance Administration noted that “if an insurer has adopted an underwriting standard that requires a deductible equal to a percentage of the ‘Coverage A — Dwelling Limit’ of the policy in the case of a hurricane or other storm, the deductible may only be applicable beginning at the time the National Hurricane Center of the National Weather Service issues a hurricane warning for any part of the State where the insured’s home is located and ending 24 hours following the termination of the last hurricane warning issued for any part of the State in which the insured’s home is located.”

Connecticut negotiated with many of the state’s insurers to waive hurricane deductibles after Hurricane Irene caused massive destruction of property. Companies that waived hurricane deductibles included ACE, Fireman's Fund, The Hartford, Liberty Mutual, MiddleOak, Nationwide, New London County Mutual, Safeco, Tower, Travelers, Utica National, Utica First and Vermont Mutual.

Florida law mandates that hurricane deductibles apply on a yearly basis to hurricane losses that occur in a calendar year. For that reason, policyholders are urged to report all windstorm-related damage as soon as possible after it occurs. If a property is damaged by multiple hurricanes in a calendar year, insurers may apply a deductible to the subsequent hurricane that is the greater of the remaining amount of the hurricane deductible, or the amount of the deductible that applies to all other perils.

Some policies add hefty deductibles for wind damage, or simply exclude wind damage coverage altogether—if the damage is not caused by a hurricane. But some states won’t allow these tactics. New Jersey’s Department of Banking and Insurance indicated that regulations prohibit wind deductibles in cases of a hurricane.

As an insurance executive, you need to work with your state and your insured property clients to arrive at an equitable solution to hurricane deductibles. Each state is different, as is each catastrophic event. 

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