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Review Your ���ϲ����� Policy to See What Coverage and Deductibles You Have

NEW YORK, July 8, 2009 — Tropical Storm Blanca, despite being downgraded today to a tropical depression off Mexico’s Pacific coastline, offered a stark reminder that now is the time for U.S. coastal homeowners to review their insurance policies to see what coverages and deductibles apply, according to the ���ϲ����� Information Institute (I.I.I.).

A standard homeowners insurance policy deductible—the amount of loss paid by policyholders before their coverage kicks in—is typically $500 or $1,000 for damage claims. Once a windstorm is declared a hurricane by the National Weather Service, however, many homeowners in the U.S. will potentially pay a higher portion of their loss in accordance with what are known as windstorm, or hurricane, deductibles. Instead of a set dollar amount, hurricane deductibles are typically a percentage, ranging 1 to 5 percent of a home’s insured value, depending on factors that differ from state to state, and sometimes from insurer to insurer. A 2 percent deductible, for example, on a home with an insured value of $100,000 would be $2,000.

The other criterion incorporated into a windstorm/hurricane deductible is the "trigger” at which a homeowner’s coverage begins. That factor is linked to a hurricane’s strength, as defined by wind speed.

“If there were no hurricane deductibles,” pointed out Loretta Worters, vice president at the I.I.I., “people would be paying even more for homeowners insurance premiums."

Eighteen states have windstorm and/or hurricane deductibles on homeowners insurance policies. They are: Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas, Virginia. The District of Columbia also allows these deductibles. Windstorm/hurricane deductibles are sometimes mandatory and may apply to an entire state or just part of it.

In April of this year, the Louisiana Department of ���ϲ����� issued a regulation allowing insurers to change their windstorm/hurricane deductible on homeowners insurance policies that have been in effect for more than three years to no more than 4 percent of the value of the property insured. Under the regulation, Louisiana insurers must now notify the policyholder of the premium savings associated with the new deductible and can apply only one deductible to a loss resulting from any single incident. 

Louisiana is also one of eight states, together with Connecticut, Florida, Maryland, New Jersey, New York, Rhode Island and South Carolina, where homeowners can secure insurance premium discounts if they have made improvements to fortify their homes against weather-related damage. Insurers must offer at least one actuarially justified premium discount to policyholders who submit proof of improvements.

Data from the Census Bureau show that in 2008, 35.7 million people were seriously threatened by Atlantic hurricanes, compared with 34.9 million in 2006 and 10.2 million in 1950. Other census data show that the coastal population in states stretching from North Carolina to Texas grew 251 percent between 1950 and 2008. Expensive homes and commercial structures in coastal areas now have an insured property value of more than $2 trillion, noted the I.I.I.

Along with greater buildup along coastal areas, the severity of catastrophes has increased dramatically in the last decade. Insured catastrophe losses for 2008 totaled an estimated $26 billion, according to ISO’s Property Claim Services Unit. While this does not come close to the $62.3 billion for 2005, the year of hurricanes Katrina and Rita, 2008 was the fourth most costly in a decade, as defined by insured losses. Insurers last year paid 3.9 million damage claims in 40 states as a result of 37 catastrophes, the highest number of catastrophic events in a single year since 1998. Over the 20-year period 1988 to 2007, hurricanes and tropical storms made up 45.6 percent of total catastrophe losses, followed by tornado losses (26.5 percent), winter storms (7.9 percent), terrorism (7.4 percent), earthquakes and other geologic events (6.3 percent), wind/hail/flood (3.2 percent) and fire (2.6 percent).

Other Things to Consider

While standard homeowners, renters and business insurance policies cover wind and rain damage from hurricanes, they do not cover flooding, according to the I.I.I. flood insurance is available from the National Flood ���ϲ����� Program and some private insurance companies. Federal flood insurance for homes or small businesses can be purchased through insurance companies or agents.

The comprehensive portion of automobile insurance policies covers losses due to flooding, but not all drivers purchase comprehensive coverage. It generally is included in policies protecting newer cars but tends to be dropped as a car’s market value declines.

To learn more about how to insure against a hurricane, contact your insurance agent or company representative.

For more information about protecting your home from natural disasters and other hazards, go to the or the (FLASH).