Hurricane and Windstorm Deductibles
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THE TOPIC
MAY 2008
During the Atlantic hurricane season, which lasts from June to November, every coastal state from Florida to Maine could potentially be hit by a storm. Increasing development along the coastal areas of these states has put more and more homes at risk of severe windstorm damage. To limit their exposure to catastrophic losses from natural disasters, many insurers in these states are selling homeowners insurance policies with percentage deductibles for storm damage instead of the traditional dollar deductibles, which are used for other types of losses such as fire damage and theft. With a policy that has a $500 standard deductible, for example, the policyholder must pay the first $500 of the claim out of pocket. But percentage deductibles are based on the home's insured value. So if a house is insured for $100,000 and has a 2 percent deductible, the first $2,000 of a claim must be paid out of the policyholder’s pocket.
Insurance companies determine the level of the hurricane or windstorm or wind/hail deductible and where it should apply, except in Florida where state law dictates these variables. Insurers' hurricane deductible plans must be reviewed by the state insurance department.
There are two kinds of wind damage deductibles: hurricane deductibles, which apply to damage solely from hurricanes, and windstorm or wind/hail deductibles, which apply to any kind of wind damage. Percentage deductibles typically vary from 1 percent of a home's insured value to 5 percent. In some coastal areas with high wind risk, hurricane deductibles may be as high as 25 percent. The amount that the homeowner will pay depends on the home's insured value and the "trigger" selected by the insurance company, which determines under what circumstances the deductible applies. In many states, policyholders have the option of paying a higher premium in return for a traditional dollar deductible. In some high-risk coastal areas, insurers may not give policyholders this option, making the percentage deductible mandatory.
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RECENT DEVELOPMENTS
- Effective October 1, 2008, insurers in Maryland can only adopt a hurricane deductible over 5 percent if the Department of Insurance has approved it. See also state section for Maryland.
- In Rhode Island, an emergency regulation concerning a law that will be effective July 1, 2008 allows insurers to apply a hurricane deductible on homeowners insurance of up to 5 percent of the home’s insured value. The emergency regulation is in effect from April 30 to August 28, 2008. The law specifies that if an insurer requires policyholders to take mitigation measures to protect against windstorm damage, it cannot include a mandatory hurricane deductible. See also state section on Rhode Island.
- In August 2007, the Mississippi Insurance Department approved two new rules that allow policyholders in the Mississippi Windstorm Underwriting Association, the Wind Pool, to reduce premiums for windstorm coverage. Effective October 1, 2007, credits against premiums for fortified construction designed to lessen damage from windstorms will be available. The buildings must meet standards of the Institute for Business & Home Safety. New optional deductibles of 5 percent, 10 percent, 15 percent and 20 percent will also be available.
- The South Carolina Wind and Hail Underwriting Association was expanded on March 30, 2007 and again on June 1. The orders, from the department of insurance, expanded the coastal territories already covered by the wind pool in four out of the five counties and added coverage on three islands. The department ordered the expansions after considering the results of the Coastal Property Insurance Data Call, a report which found that “essential property insurance is not available on a reasonable basis through normal channels for all consumers within the seacoast area.” The insurance department also conducted a review of information from insurance companies and found that insurers are either not including wind coverage in the policies they write in wind-pool areas, which is permitted, or are increasing deductibles.
- On May 30, 2007 the governor of Connecticut signed Public Act 77 which prohibits an insurer from not issuing or renewing a homeowners policy solely because the homeowner has not installed storm shutters to mitigate damage from hurricanes and severe storms. It also requires an insurer to offer a premium discount to homeowners who install shutters or impact-resistant glass. These provisions went into effect on January 1, 2008.
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STATE-BY-STATE HURRICANE DEDUCTIBLES
Eighteen states and the District of Columbia have hurricane deductibles:
Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas, Virginia and Washington DC. Listed below are reports for these states detailing hurricane deductibles.
Explanation of Terms:
- Beach Plan, FAIR (Fair Access to Insurance Requirements) Plan; and other involuntary or residual markets: insurers of last resort, state-run pools that provide insurance to people who are unable to obtain insurance in the voluntary market. Beach Plans operate in specific coastal territories, defined by zip codes, counties or geography; FAIR Plans are generally statewide.
- Deductible: amount of loss paid by the policyholder before insurance kicks in.
- Dollar deductibles: a flat dollar amount.
- Mandatory deductibles: may be set by insurance rules, regulations or state law, or by an insurer.
- Market Assistance Plan (MAP): a voluntary clearinghouse and referral system designed to put people looking for insurance in touch with insurance companies that have agreed to take on more business.
- Optional deductibles: mostly used in less vulnerable areas. Policyholders may opt for these higher deductibles in order to pay a lower premium.
- Percentage deductibles: calculated as a specified percentage, for example 2 percent, of the insured value of the property.
- Standard deductibles: an indication of the usual homeowners insurance deductibles in the state or area.
- Trigger: an event that is needed for a hurricane deductible to be applied. Hurricane deductibles are “triggered” only when there is a hurricane, or a tropical storm. Triggers vary by state and insurer and may apply when the National Weather Service (NWS) "names" a tropical storm, declares a hurricane watch or warning or defines the hurricane's intensity (see below). Triggers generally include a timing factor, i.e., damage occurring within 24 hours before the storm is named or a hurricane makes landfall up to as long as 72 hours after the hurricane is downgraded to a lesser storm or a hurricane watch cancelled.
- Voluntary market: regular or competitive market, the traditional insurance market.
- WindMap (NJ): a market assistance plan set up at the New Jersey Department of Insurance that is subject to state rules concerning eligibility but operates in the voluntary market instead of being a state-run plan.
ALABAMA HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for 24 to 48 hours after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5 with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Voluntary Market: Optional or mandatory, depending on the insurer.
Hurricane Deductibles: At least three of the top five insurers have mandatory hurricane deductibles. For these insurers, the deductibles are 2 percent to 15 percent. At least one insurer in the top five uses a wind/hail deductible ranging from $1,000 in areas where the vulnerability to hurricane damage is severe, to $250 where it is low.
Trigger: Hurricane warning issued by the National Weather Service, in effect for 24 to 72 hours after the warning is lifted.
Alabama Insurance Underwriting Association (Beach Plan): The Alabama Insurance Underwriting Association (AIUA, http://www.alabamabeachpool.org ) provides two types of policies: fire and extended coverage (not as comprehensive as standard homeowners policies and provides no liability coverage); and a wind and hail only policy for homes, condominiums, mobile homes and commercial businesses located in the Beach, Seacoast and Gulf Front territories of Baldwin and Mobile Counties. See web site for details.
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CONNECTICUT HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for some time after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5 with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Beginning January 1, 2008, insurers are prohibited from not issuing or renewing a homeowners policy because the homeowner has not installed storm shutters to mitigate hurricane or other storm damage. In addition, insurers must offer a premium discount to homeowners who install storm shutters or impact-resistant glass.
Voluntary Market: At least two of the top five homeowners insurers have mandatory hurricane deductibles in certain coastal areas. One requires a wind and hail deductible. Wind and hail deductibles apply to losses from wind from any source.
Hurricane or Wind and Hail Deductible: Mandatory hurricane deductibles are between 1 percent and 5 percent. At least one of the top five insurers uses a wind/hail deductible of 2 percent and $100 to $2,000.
Trigger: Hurricane watch or warning by the National Hurricane Center or National Weather Service; durations for hurricane deductibles vary.
Connecticut FAIR Plan: The Connecticut FAIR Plan (http://www.ctfairplan.com/ ) insures homeowners who have not been able to find coverage elsewhere. Provides actual cash value coverage for a very basic “named perils” policy. See web site for details.
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DELAWARE HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for 24 to 48 hours after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5 with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buy back) or a higher deductible for a premium credit.
Voluntary Market: At least two of the top 5 homeowners insurers have a mandatory hurricane or wind and hail deductible in certain jurisdictions, notably in Sussex County (southern shore).
Hurricane or Wind and Hail Deductible: 2 percent. Flat dollar deductibles are available depending on vulnerability to wind ranging from $100 to $250.
Trigger: Hurricane warning or watch issued by the National Weather Service.
Insurance Placement Facility of Delaware: The facility (http://www.defairplan.com ) insures homeowners who have not been able to find coverage elsewhere for windstorm and hail damage. See web site for details.
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DISTRICT OF COLUMBIA HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for some time after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5 with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Voluntary Market: At least one insurer among the top 10 homeowners insurers is using an optional wind/hail deductible. In addition, two other insurers (not in the top 10) are using wind/hail or windstorm deductibles.
Wind/hail or Windstorm Deductibles: Optional deductibles range from 1 percent to 5 percent, and from $1,000 to $5,000.
District of Columbia Property Insurance Facility: The FAIR Plan (http://www.dcpif.org ) insures homeowners who have not been able to find coverage elsewhere. See web site for details.
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FLORIDA HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling or as a flat dollar amount. By Florida statute, the application of hurricane deductibles is triggered by windstorm losses resulting from “a storm system that has been declared to be a hurricane by the National Hurricane Center of the National Weather Service.” They take effect “at the time a hurricane watch or warning is issued for any part of Florida” and remain in effect “for the time period during which the hurricane conditions exist anywhere in Florida,” ending 72 hours following the termination of the last hurricane watch or warning. Wind damage from storm systems other than declared hurricanes is not subject to the hurricane deductible but to the general deductible. Hurricane deductibles—as shown in the chart below—and their triggers are set by law and are the same for the private, or regular market, as well as Florida’s Citizens Property Insurance Corporation, the state-run program which provides homeowners insurance to consumers. Homeowners pay the deductible only once during a hurricane season.
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FLORIDA STATEWIDE RESIDENTIAL HURRICANE DEDUCTIBLE PROVISIONS
As of February 2007
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The Citizens Property Insurance Corporation (CPIC): The CPIC (https://www.citizensfla.com), Florida's state-run insurer of last resort and its largest homeowners insurer, will insure new homeowners if they do not have an offer of coverage from another insurance company or if an insurance company has offered a policy with a premium that is more than 25 percent higher than the Citizens premium for comparable coverage. CPIC offers three types of property and casualty insurance:
- Personal Lines Account, for homeowners, mobile homeowners, tenants and condominium owners;
- Commercial Lines Account, for condominium associations, apartment buildings and homeowners associations, and the
- High-Risk Account, for personal, commercial residential and commercial non-residential customers.
See web site for details.
Florida Market Assistance Program (FMAP, http://www.fmap.org ): The FMAP is a free referral service designed to match consumers who cannot find property insurance with Florida licensed agents and insurers who are writing new business. See web site for details.
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GEORGIA HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for 24 to 48 hours after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5 with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Voluntary Market: Two of the top 5 homeowners insurers use a hurricane deductible; two use a wind and hail deductible.
Hurricane Deductibles: Mandatory 2 to 10 percent. Wind/hail: one company uses a mandatory 1 percent or 5 percent or $500 on the coast; optional noncoastal deductibles are $500-$2,500. Other wind/hail deductibles range from $100 to $1,000, depending on vulnerability to wind.
Trigger: Hurricane warning or watch issued by the National Weather Service.
Georgia Insurance Underwriting Association (FAIR Plan): The FAIR Plan(http://www.georgiaunderwriting.com ) insures those who have not been able to find coverage elsewhere for windstorm and hail damage only for homes and businesses in certain coastal counties and islands. See web site for details.
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HAWAII HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for some time after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5 with 5 as the highest intensity. If the policy has a mandatory deductible, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
The Hawaii State Legislature created the Hawaii Hurricane Relief Fund in 1993 to provide windstorm damage from hurricane force winds in the wake of Hurricane Iniki which caused about $2.2 billion in insured losses in 2005 dollars. After the homeowners insurance market stabilized, the fund was shut down and stopped writing coverage at the end of 2000. Currently, one insurance company writes property policies specifically limited to the peril of hurricane damage in Hawaii only. Policyholders then purchase property coverage for other perils and liability coverage from other insurers.
Voluntary Market: One major insurer is writing property policies limited to hurricane damage.
Hurricane or Wind and Hail Deductible: Mandatory hurricane deductible minimum is 1 percent statewide. Optional deductibles up to 5 percent are available. Wind/hail deductible in highly vulnerable areas is $2,000 or 2 percent.
Trigger: Hurricane watch or warning by the National Weather Service.
Hawaii Property Insurance Association (FAIR Plan): The insurer of last resort for homeowners insurance. Does not offer hurricane coverage.
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LOUISIANA HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for some time after a storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5, with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Regular (Voluntary) Market: There is very little homeowners insurance written by private insurers in areas most prone to hurricane damage. Most homeowners coverage in coastal areas is underwritten by the Louisiana Citizens Property Insurance Corporation. At least three of the top 10 insurers are using hurricane deductibles. One company is using wind/hail deductible.
Hurricane Deductibles: Mandatory hurricane deductibles are between 2 and 15 percent in coastal areas. Optional hurricane deductibles in noncoastal areas of 3 percent are available. Mandatory wind/hail deductibles are $250 to $1,000 or 1 percent. Optional wind/hail deductibles of $500 to $2,500 and 1, 2 and 5 percent are available.
Louisiana Citizens Property Insurance Corporation (http://www.lacitizens.com ): Provides insurance for residential and commercial property for those who cannot obtain it in the voluntary market. The Louisiana Citizens FAIR Plan and the Louisiana Citizens Coastal Plan operate as programs of the Louisiana Citizens Property Insurance Corporation.The Coastal Plan offers coverage in Zone 5, south of the Intercoastal Waterway, the most hurricane-vulnerable area. The Fair Plan offers coverage in the rest of the state. Both offer wind and hail only policies. See web site for details.
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MAINE HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for some time after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5 with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Voluntary Market: At least one of the top 10 homeowners insurers has a hurricane deductible, which goes into effect in the event of a named storm. At least two companies in the top 10 have a wind/hail deductible, which applies to any loss caused by wind. Deductibles can be either a flat dollar amount or a percentage based on the amount of dwelling coverage.
Hurricane or Windstorm or Wind/Hail Deductibles: At least one of the top 10 insurers has a mandatory 3 percent hurricane deductible. Wind/hail deductibles range from $100 to $250 in areas of low vulnerability to wind. Another company has optional wind and hail deductibles of $500 to $2,500 and 1, 2 and 5 percent.
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MARYLAND HURRICANE DEDUCTIBLES (May 2008)
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for some time after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5 with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Effective October 1, 2008, Maryland state law requires insurers that want to use a deductible that exceeds 5 percent of the value of a dwelling (coverage A) to file a request with the Insurance Commission. Hurricane deductibles are activated only when the National Hurricane Center issues a hurricane warning in any part of the state and ends 24 hours after the last warning. Insurers must notify policyholders of the deductibles and must explain how they is applied. In addition, insurers must offer a premium discount to homeowners who submit proof of specified improvements that reduce losses (damage) from hurricanes and other storms.
Voluntary Market: As of 2007, at least two of the top 10 homeowners insurers and one additional company not in the top 10 use a wind/hail deductible, which covers losses from wind from any source. At least one of the top 10 companies has a hurricane deductible. All four companies require a mandatory deductible in coastal areas.
Deductibles: Mandatory 2 percent hurricane deductible for a major insurer. Wind/hail deductibles range from 1 to 5 percent and $100 to $5,000. At least one company offers buybacks in noncoastal areas. Optional wind/hail deductibles are 1, 2 and 5 percent and $500 to $1,000.
Trigger: Hurricane declared by the National Weather Service, up to 72 hours after the last hurricane watch or warning.
Maryland Joint Insurance Association (FAIR Plan, http://www.mdinsurance.state.md.us ): Insures homeowners and businesses who have not been able to find coverage elsewhere. See web site for details.
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MASSACHUSETTS HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other causes of loss. As a rule, they are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for 24 to 48 hours after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5, with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Voluntary Market: At least two homeowners insurers are using hurricane deductibles and one uses a wind/hail deductible.
Deductibles:Hurricane deductibles: Dukes (Martha’s Vineyard), Nantucket and Barnstable (Cape Cod) Counties: mandatory 2 to 5 percent. Other coastal counties and inland counties: 1 and 2 percent. Wind/hail deductibles where available range from $100 to $250.
Massachusetts Property Insurance Underwriting Association (FAIR Plan, http://www.mpiua.com ): Insures properties where the homeowner or business has not been able to find coverage elsewhere. The plan uses a windstorm/hail deductible for any type of wind damage. See web site for details.
Massachusetts Market Assistance Plan (MA-MAP): The Massachusetts Market Assistance Plan is a voluntary network of participating homeowners insurance companies and insurance brokers to assist residents in obtaining homeowners insurance.
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MISSISSIPPI HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for some time after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5 with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Voluntary Market: Where mandatory, insurers are required by law to provide buyback options to their policyholders, see above. At least three of the top 10 homeowners insurers in the state use a mandatory hurricane deductible. At least two of the top 10 companies use a mandatory wind and hail deductible.
Hurricane/Wind/Hail Deductible: Hurricane deductibles range from 1 to 15 percent. Wind and hail deductibles range from $250 to $2,500 and from 1 to 5 percent.
Mississippi Windstorm Underwriting Association (Wind Pool) (http://www.msplans.com ): Insures homeowners who have not been able to find coverage elsewhere in the Coast areas for windstorm and hail damage only. See web site for details.
Mississippi Residential Property Insurance Underwriting Association (MRPIUA, http://www.msplans.com ): Insures owners of one- and two-family dwellings in the state who have not been able to find coverage elsewhere for windstorm, hail and fire and extended coverage. The MRPIUA does not provide wind and hail coverage in the three coastal counties closest to the shore. This coverage is available at the Mississippi Windstorm Underwriting Association. See web site for details.
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NEW JERSEY HURRICANE DEDUCTIBLES
Hurricane Deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for 24 to 48 hours after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5, with 5 as the highest intensity.
In New Jersey, hurricane deductibles approved by the Department of Banking and Insurance apply to losses from a storm designated a hurricane by the National Weather Service but only if sustained winds speeds of 74 mph have been measured somewhere in the state. Any hurricane deductible used on a statewide basis must be optional and must allow the policyholder to reduce the deductible to the amount of the standard policy deductible by paying a higher premium. Mandatory deductibles may be used only on properties located in the 92 coastal zip codes (see FAIR Plan and WindMAP below), and policyholders who must have these deductibles may be able to reduce or eliminate them if the property has certain construction features, such as storm shutters and special roof construction, that would provide protection to the property from damage in the event of a hurricane. Insurance companies that use mandatory deductibles must have a Loss Mitigation Plan that informs the policyholder what criteria must be met to reduce or eliminate the deductible. The homeowner’s efforts to control potential loss may need to be inspected or certified. When mandatory deductibles apply, insurers will not sell homeowners insurance without a hurricane deductible. With optional deductibles, policyholders may choose lower deductibles in exchange for a higher premium (a buyback) or higher deductibles for a premium credit.
Voluntary Market: Mandatory in coastal zip codes, usually shore to 5 miles inland.
Hurricane Deductibles: 4 percent in coastal areas closest to the ocean, 2 percent and 3 percent further inland. 5 percent deductible available more than 5 miles inland; some mandatory deductibles may be reduced if the homeowner takes steps to mitigate damage.
Trigger: Category 1 hurricane (wind at least 74 mph), measured by the National Weather Service, usually 12 hours before the hurricane force winds are measured until 12 hours after the last hurricane force winds are measured in the state.
New Jersey Insurance Underwriting Association (FAIR Plan, http://www.njiua.org ): Insures one- to four family homes where the owner has not been able to find coverage elsewhere. Coverage is limited but perils include wind. See web site for details.
Windstorm Market Assistance Program (WindMAP, http://www.njiua.org/windmap.html ): The WindMAP is a network of insurance companies, agents and brokers who help qualified homeowners in coastal areas obtain homeowners coverage. See web site for details.
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NEW YORK HURRICANE DEDUCTIBLES (April 2008)
Hurricane deductibles are percentage or dollar deductibles that are higher than for other causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for 24 to 48 hours after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5, with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Regular (Voluntary) Market: Generally mandatory in coastal areas.
Hurricane Deductibles: Insurers that account for almost half of the state market have mandatory 5 percent deductibles.
Where the Deductible Applies: The five boroughs of New York City (Manhattan, Bronx, Brooklyn, Queens and Staten Island, Nassau and Suffolk Counties and parts of Westchester County. Hurricane deductibles as of March 2008 by company can be viewed on the New York State Department of Insurance Web site at http://www.ins.state.ny.us in the Homeowners Resources Center under "Windstorm Deductibles".
If the policy contains a hurricane deductible, insurers must send the policyholder a disclosure statement. According to the New York State Insurance Department, the approved programs provide windstorm coverage subject to certain mandatory deductibles, depending on the geographical location of the risk. The event that triggers the use of these deductibles varies from insurer to insurer. Some insurers use a Category One hurricane as the triggering event while others use a Category Two hurricane. In any event, the hurricane would have to be designated as such by either the National Weather Service or the National Hurricane Center. Other insurers use either a specific mile-per-hour wind speed as a trigger or a mandatory deductible for all windstorm loss.
New York Property Insurance Underwriting Association (FAIR Plan, http://www.nypiua.com ): The plan insures residential and commercial properties in the state where the homeowner cannot find coverage elsewhere. "Extended coverage" includes windstorm coverage. See web site for details.
Coastal Market Assistance Plan (C-MAP, http://www.nypiua.com/cmap.html ): The C-MAP assists policyholders living along the coast locate an insurer willing to provide homeowners coverage. See web site for details.
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NORTH CAROLINA HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for 24 to 48 hours after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5, with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Regular (Voluntary) Market: Some companies use a wind/hail deductible for all wind damage.
Deductibles: 1 percent, 2 percent, 5 percent and $1,000 in coastal areas; flat dollar deductibles of $250-$2,500 are available elsewhere in the state.
North Carolina Joint Underwriting Association (FAIR Plan, http://www.ncjua-nciua.org ): Insures residential and commercial properties statewide where the homeowner has not been able to find property coverage elsewhere except in barrier islands adjacent to the Atlantic Ocean. See web site for details.
North Carolina Insurance Underwriting Association (Beach Plan, http://www.ncjua-nciua.org ): Insures properties where the homeowner has not been able to find coverage elsewhere for windstorm and hail damage only in 18 coastal counties. See web site for details.
Information Sources:
RHODE ISLAND HURRICANE DEDUCTIBLES (May 5, 2008)
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. If the policy has mandatory deductibles, the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Insurers in Rhode Island are not allowed to deny coverage based solely on proximity to the coast. The Department of Business Regulation has adopted on an emergency basis a regulation that concerns homeowners insurance issued or renewed by July 1, 2008. The emergency regulation will be in effect from April 28 to August 28, 2008. The regulation specifies that insurers may apply a hurricane deductible on homeowners insurance of no more than 5 percent of a home’s insured value. The deductible will only be in effect when the National Hurricane Center issues a hurricane warning for any part of Rhode Island and will remain in effect for 24 hours after the last warning. Windstorm deductibles may not be used. Insurers may offer a flat dollar deductible instead of or in addition to a percentage deductible but the total deductible may not exceed 5 percent of the insured value of the property. Premium credits, or discounts, must be provided if policies have hurricane deductibles. Insurers can require mitigation measures only in certain specified zones and must waive the hurricane deductible if the policyholder implements mitigation measures. Insurers must provide notice of hurricane deductibles and must offer examples. See also http://www.dbr.ri.gov/documents/rules/insurance/InsuranceRegulation110.pdf
Voluntary Market (As of 2007): At least three of the top 10 homeowners insurers have hurricane or named storm deductibles. At least one other company has a wind loss deductible, which applies to any loss caused by wind.
Hurricane or Hurricane/Windstorm Deductibles: Mandatory hurricane deductibles in specified coastal areas are 1 percent and 2 percent. At least one insurer will waive the mandatory deductible if the home meets specific mitigation regulations. Optional deductibles range from 1 percent, 5 percent and 10 percent and $2,500 to $10,000.
Rhode Island Joint Reinsurance Association: Insures homeowners and commercial property owners who have not been able to find coverage in the voluntary market. See web site for details.
Information Sources:
SOUTH CAROLINA HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for 24 to 48 hours after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5, with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Regular (Voluntary) Market: Mandatory or optional, depending on the insurer.
Hurricane Deductibles: Generally 2 percent-5 percent in beach territories, flat dollar deductibles of $1,000-$20,000 are available. 10 percent-15 percent available in other areas of the state.
South Carolina Wind and Hail Underwriting Association (Wind Pool, http://www.scwind.com ): The association insures properties where the homeowner has not been able to find coverage elsewhere for windstorm and hail damage from any type of windstorm. The Wind Pool operates in certain coastal areas. See web site for details.
Information Sources:
TEXAS HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for 24 to 48 hours after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5, with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
Note: Under Texas law, the deductible applies to windstorm and hail damage from any type of wind storm.
Regular (Voluntary) Market: Windstorm and Hail Deductible: the deductibles range from 0.5 percent to 25 percent and from $100 to $5,000. Some insurers require a minimum deductible, typically 2 to 5 percent.
Texas Windstorm Insurance Association (TWIA, http://www.twia.org ): Provides adequate wind and hail coverage when it is not available in the insurance marketplace for 14 counties along the Texas gulf coast and parts of Harris County (Galveston Bay). See web site for details.
Texas Fair Access to Insurance Requirements Plan Association (FAIR Plan, http://www.texasfairplan.org ): Provides residential property insurance to qualified homeowners who cannot obtain insurance from licensed insurance companies. The Fair plan operates statewide but cannot provide wind and hail coverage in areas that are eligible for inclusion in the TWIA (The TWIA covers only 14 coastal counties and five communities in Harris County [Galveston Bay].) See web site for details.
Information Sources:
VIRGINIA HURRICANE DEDUCTIBLES
Hurricane deductibles are percentage or dollar deductibles that are higher than for other perils, or causes of loss. They are calculated as a percentage of the dollar amount of coverage on the dwelling. The trigger for hurricane deductibles, or the point at which they apply, varies by company. Triggers have some common characteristics: they generally go into effect only when the National Weather Service issues a hurricane watch or warning and remain in effect for 24 to 48 hours after the storm has passed. The intensity of hurricanes also affects the trigger. Hurricanes are classified on a scale of 1 to 5 with 5 as the highest intensity. If the policy has mandatory deductibles, this means the insurer will not sell homeowners coverage without a hurricane deductible. When a deductible is optional, policyholders may also choose a lower deductible in exchange for a higher premium (a buyback) or a higher deductible for a premium credit.
If the insurer has increased the hurricane deductible, it must inform the policyholder and explain how the new deductible will work.
Voluntary Market: Mandatory or optional, depending on the insurer and proximity to the coast.
Hurricane Deductible: Three of the top 10 homeowners insurers do not use a hurricane deductible. Five insurers have mandatory hurricane deductibles for coastal properties, range: 2-5 percent of the policy limit. Other companies use hurricane deductibles of 1-2 percent. Some insurers offer the option of a flat dollar hurricane deductible, ranging from $500 to $5,000, with $1,000 the most common.
Trigger: Hurricane watch or warning issued by the National Weather Service.
Virginia Property Insurance Association (FAIR Plan, http://www.vpia.com ): The association provides dwelling and commercial property coverages to individuals and businesses throughout the state who are unable to obtain coverage through the voluntary insurance market. See web site for details.
Information Sources:
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THE SAFFIR/SIMPSON CLASSIFICATION SYSTEM FOR HURRICANES
Category |
Wind speeds |
Pressures |
Storm surge |
Damage |
| 1 | 74-95 mph | Greater than 980 mb | 4-5 ft. | Light |
| 2 | 96-110 mph | 965-979 mb | 6-8 ft. | Moderate |
| 3 | 111-130 mph | 945-964 mb | 9-12 ft. | Extensive |
| 4 | 131-155 mph | 920-944 mb | 13-18 ft. | Extreme |
| 5 | More than 155 mph | Less than 920 mb | Greater than 18 ft. | Catastrophic |
| Source: U.S. Department of Commerce, National Oceanic and Atmospheric Administration, National Hurricane Center. |
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HURRICANES AND RELATED DEATHS IN THE UNITED STATES, 1988-2007
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CATASTROPHIC HURRICANE CLAIMS AND LOSSES,
IN THE UNITED STATES, 1998-2006 (1)
|
1998 |
1999 |
2002 |
2003 |
2004 |
2005 |
2006 |
| Frequency | 2 | 5 | 1 | 2 | 5 | 6 | 0 |
| Claims | 729,450 | 695,850 | 133,700 | 527,800 | 2,259,150 | 3,315,550 | NA |
| Personal (2) | 72.8% | 73.9% | 83.8% | 82.3% | 73.6% | 70.0% | NA |
| Commercial (2) | 15.7% | 17.2% | 3.0% | 4.1% | 13.4% | 9.3% | NA |
| Vehicles | 11.5% | 9.0% | 13.2% | 13.5% | 12.9% | 20.7% | NA |
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| Losses ($ millions) | $3,315 | $2,315 | $430 | $1,775 | $22,900 | $58,337 | NA |
| Personal (2) | 34.9% | 39.4% | 66.5% | 74.9% | 65.7% | 49.8% | NA |
| Commercial (2) | 59.8% | 55.6 | 26.7% | 14.0% | 29.6% | 44.7% | NA |
| Vehicles | 5.4% | 5.0% | 6.7% | 11.1% | 4.6% | 5.5% | NA |
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| Average claim severity | | | | | | | |
| Personal (2) | $2,176 | $1,773 | $2,554 | $3,061 | $9,049 | $12,515 | NA |
| Commercial (2) | $17,331 | $10,769 | $28,750 | $11,376 | $22,337 | $84,953 | NA |
| Vehicles | $2,124 | $1,856 | $1,638 | $2,755 | $3,626 | $4,698 | NA |
(1) ISO's Property Claim Services unit currently defines catastrophes as events causing at least $25 million in direct insured losses to property and affecting significant numbers of insurers and insureds. There were no catastrophic hurricanes in 2000, 2001 or 2006.
(2) Property losses excluding vehicle losses.
Note: Data are as of August 2007 and may differ from similar data shown elsewhere.
Source: ISO's Property Claim Services Unit. |
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CATASTROPHIC HURRICANE LOSSES IN THE UNITED STATES, 1997-2006
Year |
Number of catastrophic hurricanes (1) |
Insured loss (2) |
Year |
Number of catastrophic hurricanes (1) |
Insured loss (2) |
| 1997 | 1 | $75.4 million | 2002 | 1 | $481.9 million |
| 1998 | 2 | 4.1 billion | 2003 | 2 | 1.9 billion |
| 1999 | 5 | 2.8 billion | 2004 | 5 | 24.4 billion |
| 2000 (3) | 0 | NA | 2005 | 6 | 60.2 billion |
| 2001 (3) | 0 | NA | 2006 (3) | 0 | NA |
(1) Major hurricanes as defined by ISO.
(2) Adjusted to 2006 dollars by ISO.
(3) No wind event met ISO's Property Claim Services Unit catastrophe definition of a single incident or a series of related incidents, man-made or natural disasters that causes insured property losses of at least $25 million and affects a significant number of policyholders and insurers.
NA= Not applicable.
Source: ISO's Property Claim Services Unit. |
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TOP 15 MOST COSTLY HURRICANES IN THE UNITED STATES
($ millions)
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Estimated insured loss (1) |
Rank |
Date |
Location |
Hurricane |
Dollars when occurred |
In 2007 dollars (2) |
| 1 | Aug. 25-30, 2005 | AL, FL, GA, LA, MS, TN | Katrina | $41,100 | $43,625 |
| 2 | Aug. 24-26, 1992 | FL, LA | Andrew | 15,500 | 22,902 |
| 3 | Oct. 24, 2005 | FL | Wilma | 10,300 | 10,933 |
| 4 | Aug. 13-14, 2004 | FL, NC, SC | Charley | 7,475 | 8,203 |
| 5 | Sep. 15-21, 2004 | AL, DE, FL, GA, LA, MD, MS, NJ, NY, NC, OH, PA, TN, VA, WV | Ivan | 7,110 | 7,803 |
| 6 | Sep. 17-22, 1989 | GA, NC, PR, SC, VA, U.S. Virgin Islands | Hugo | 4,195 | 7,013 |
| 7 | Sep. 20-26, 2005 | AL, AR, FL, LA, MS, TN, TX | Rita | 5,627 | 5,973 |
| 8 | Sep. 3-9, 2004 | FL, GA, NC, NY, SC | Frances | 4,595 | 5,043 |
| 9 | Sep. 15-29, 2004 | DE, FL, GA, MD, NJ, NY, NC, PA, PR, SC, VA | Jeanne | 3,655 | 4,011 |
| 10 | Sept. 21-28, 1998 | AL, FL, LA, MS, PR, U.S. Virgin Islands | Georges | 2,955 | 3,758 |
| 11 | Oct. 4, 1995 | FL, AL, GA, NC, SC, TN | Opal | 2,100 | 2,856 |
| 12 | Sep. 14-17, 1999 | NC, NJ, VA, FL, SC, PA, 10 other states | Floyd | 1,960 | 2,439 |
| 13 | Sep. 11, 1992 | Kaui and Oahu, HI | Iniki | 1,600 | 2,364 |
| 14 | Sep. 5, 1996 | NC, SC, VA, MD, WV, PA, OH | Fran | 1,600 | 2,114 |
| 15 | Sep. 15-16, 1995 | PR, U.S. Virgin Islands | Marilyn | 875 | 1,190 |
(1) Property coverage only.
(2) Adjusted to 2007 dollars by the Insurance Information Institute.
Source: ISO's Property Claim Services Unit; Insurance Information Institute. |
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BACKGROUND
In 1992, Hurricane Andrew caused $15.5 billion insured losses, the most expensive storm ever for insurers, with claims costing nearly four times as much as the previous most costly storm, Hurricane Hugo in 1989. It soon became apparent through computer-based models of storms and residential development patterns that homeowners insurers were far more vulnerable to huge weather-related losses than they had thought. Some of the largest homeowners insurers found it difficult to arrange for the reinsurance (insurance for insurance companies) coverage they needed to protect their bottom line because reinsurers were unwilling to assume so much risk. To get coverage from reinsurers, they had to agree to greatly reduce their potential maximum losses from severe wind and hailstorms by requiring their policyholders to bear a greater share of the cost. This was accomplished by switching over to percentage deductibles that not only increase the deductible amount across the board but force homeowners with expensive homes to take a higher financial burden than those with homes of lesser value.
The National Weather Service classifies tropical storms as low pressure systems forming over tropical areas, with winds of a minimum of 40 mph. Hurricanes are classified by using the Saffir/Simpson intensity scale which measures atmospheric pressure in terms of millibars (mb) or inches of mercury, along with wind speeds, storm surge and damage:
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© Insurance Information Institute, Inc. - ALL RIGHTS RESERVED
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Additional Documents
|  Hurricane Study - Hurricane Andrew devastated south Florida in 1992 causing insured losses of $20 billion and economic losses of $34 billion (in current dollars). In this study, the potential insurance and economic consequences of an Andrew-like storm are examined. The written study is accompanied by a PowerPoint presentation that details hurricane risk in the United State generally and Florida specifically.
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