Hurricane deductibles are incorporated into many of the homeowners insurance policies issued in 18 coastal states and the District of Columbia, so policyholders should to determine whether these deductibles apply to them.
A deductible is the amount of money policyholders pay out-of-pocket before their insurance coverage kicks in. A standard homeowners insurance policy deductible is usually either $500 or $1,000.
State insurance regulators in 18 states allow property insurance policies to include hurricane deductibles, which are tied to a percentage of a home’s insured value, rather than a flat dollar amount.
The states allowing hurricane deductibles include: Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas and Virginia.
Hurricane deductibles apply solely to damage from hurricanes, and typically vary from 1 percent to 5 percent of the insured value of a home. For example, a policyholder whose home is insured for $200,000, and has a 2 percent hurricane deductible, would have to pay the first $4,000 needed to repair the home, if the loss were caused by a hurricane. In some coastal areas with high wind risk, insurers may incorporate hurricane deductibles even higher than 5 percent. Moreover, in some states policyholders can select higher hurricane deductibles in order to reduce their premiums. Insurers’ hurricane deductible plans are reviewed by state insurance regulators.
Whether a hurricane deductible applies to a claim depends on the specific “trigger” selected by the insurance company. These triggers vary by state and insurer and usually apply when the National Weather Service (NWS) officially names a tropical storm, declares a hurricane watch or warning, or defines a hurricane’s intensity. Due to these differences, homeowners should check their policies and speak to their agent or insurance company to learn exactly how their particular hurricane deductible works.
THE ORIGINS OF HURRICANE DEDUCTIBLES
Homeowners insurers realized after Hurricane Andrew struck Florida in 1992, and Hurricane Hugo hit South Carolina in 1989, that they were far more vulnerable to huge weather-related losses than they had previously thought. Indeed, some of the nation’s largest homeowners insurers found in the early 1990s that it was difficult for them to secure the reinsurance coverage they needed to protect their bottom line because reinsurers were unwilling to assume so much of the homeowners insurers’ risk. To get coverage from reinsurers, homeowners insurers had to agree to reduce their potential maximum losses from severe wind by requiring policyholders to bear a greater share of the cost, and sought permission from their regulators to take this step. This was accomplished by switching over to hurricane deductibles, tied to a percentage of a home’s insured value.