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, insurers in these states sell 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. Therefore, if a house is insured for $300,000 and has a 5% deductible, the first $15,000 of a claim must be paid out of the policyholder’s pocket.
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% of a home’s insured value to 5%. In some coastal areas with high wind risk, hurricane deductibles may be higher. 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 some states, policyholders may have the option of paying a higher premium in return for a traditional dollar deductible, depending on how close to the shore they live. In some high-risk coastal areas, insurers may not give policyholders this option, making the percentage deductible mandatory.
What is a Trigger?
A “trigger” is 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. 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.
Rhode Island Hurricane Deductibles
Insurers may offer a flat dollar deductible instead of or in addition to a percentage deductible but the total deductible may not exceed 5% of the insured value of the property. Premium credits, or discounts, must be provided if policies have hurricane deductibles. The deductible will only be in effect when the National Weather Service issues a hurricane warning for the applicable parts of Rhode Island and will remain in effect for 24 hours after the last warning. According to the Department of Insurance, for Block Island a loss is due to a hurricane when there are hurricane force sustained winds as defined by the National Weather Service. For the remainder of the state, a loss is due to a hurricane when there are hurricane force sustained winds anywhere in the state other than Block Island, as reported by the National Weather Service. If a policyholder experiences a loss from more than one hurricane in a calendar year, the insurer can apply the hurricane deductible only once. Insurers are required to post a notice containing all details pertaining to hurricane deductibles on the homeowners policy, including at least two practical examples of how they work.
Connecticut Hurricane Deductibles
The trigger for hurricane deductibles in Connecticut, or the point at which they apply, is by law when the National Weather Service (NWS) declares a hurricane that records winds of 74 miles per hour or more. The hurricane deductible is in effect until 24 hours following termination of the last hurricane warning issued for any part of Connecticut by the NWS; or 24 hours after the hurricane is downgraded from a hurricane by the NWS for any part of Connecticut.
The Insurance Department allows companies to apply an actuarially justified hurricane deductible based on a property’s distance to the coast.