United Policyholders
A NON-PROFIT ORGANIZATION

 

Hurricane and Windstorm Deductibles

as posted at www.iii.org

 

THE TOPIC

DECEMBER 2005

During the Atlantic hurricane season, which lasts from June to November, every coastal state from Florida to Massachusetts 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 that are used for other types of claims such as fire damage and theft. With a policy that has a $500 standard deductible, for example, the policyholder must pay the first $500 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.

In some states, hurricane deductibles apply to damage solely from hurricanes; in other states, deductibles apply to any kind of wind damage. Percentage deductibles vary from one percent of a home's insured value to 15 percent, depending on many factors that differ from state to state, and sometimes from insurer to insurer. These include the home's insured value and the "trigger," the nature of the event to which the deductible applies. In many states, policyholders have the option of paying a higher premium in return for a traditional dollar deductible rather than a percentage one or in exchange for a lower percentage deductible. Percentage deductibles are sometimes mandatory and may apply to an entire state or just part of it.

RECENT DEVELOPMENTS

  • In Alabama, the Hurricane Insurance Issues Task Force chaired by the Insurance Commissioner and attended by legislators from the state’s coastal area and representatives from some of the largest homeowners insurers in the state met at the end of April. The issue was the problem residents of coastal properties are facing finding insurance coverage. (One of the largest insurers in the state announced in March that it would no longer offer coverage to 2,300 homeowners on the coast.) In addition, some companies exclude wind damage, which forces consumers to seek coverage in the Alabama Insurance Underwriting Association. The pool’s premiums and deductibles are usually higher. The Task Force will meet again in June and in the meantime will study the feasibility of setting up a market assistance program (MAP).
  • Florida Legislation: Four major hurricanes hit Florida in 2004—Charley, Frances, Ivan and Jeanne. About 36,000 Florida homeowners paid more than one deductible for the 2004 hurricanes, according to the Florida Insurance Council. Lawmakers passed a bill in December 2004 that eliminated multiple hurricane deductibles as of May 2005 and set up a reimbursement program for homeowners who paid more than one deductible during the 2004 hurricane season. (See state report on Florida, below.)
  • At the end of April, Florida’s House passed its hurricane legislation which did not include an option to choose a 1 percent deductible, a move that would have raised insurers’ exposure to loss. Currently, consumers can choose either a 2 or 5 percent deductible. Most choose 2 percent. Among other provisions is a requirement that policyholders who reside in flood zones purchase flood insurance in order to be eligible to purchase insurance from Citizens Insurance Property Corporation. Where provisions in the Senate and House bills differ, lawmakers must come to some agreement before adjournment on May 6.

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 state reports detailing hurricane deductibles for Alabama, Delaware, Florida, Georgia, Louisiana, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, South Carolina, Virginia and Texas.

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 it applies, 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. When mandatory deductibles apply, insurers will not sell homeowners coverage 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: Optional or mandatory, depending on the insurer.
Hurricane Deductibles: Where mandatory, range: 2-5 percent, highest in the two coastal counties. Where optional, most insurers use $1,000 but they can be as high as $2,000. One of the top ten homeowners insurers in the state has no hurricane deductible.
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) provides a wind and hail only policy for homes, condominiums, mobile homes and commercial businesses located in the Beach and Seacoast territories of Baldwin and Mobile Counties. The territories are determined by ISO. Properties located in zones specified by the National Flood Insurance Program must have a flood insurance policy in place before the AIUA will issue a policy. Properties determined to come under the Coastal Barrier Resource Act, which are not eligible for a flood insurance policy, cannot be insured by the AIUA. The AIUA provides coverage on buildings or structures up to a maximum of $350,000 combined dwelling and contents for a one to four family residential building. The maximum is $1 million, combined, for a commercial building. When the property owner applies for AIUA insurance, the owner must initial the application to indicate that they understand that a 2 percent deductible will be used.
Hurricane Deductibles: A hurricane deductible of 2 percent, or $1,000 minimum, is applied to each policy. The hurricane deductible applies only in the event of a named storm, and applies to direct physical loss or damage to covered property caused by wind, wind gusts, hail, rain, tornadoes or cyclones caused by a hurricane. The deductible will be activated by each hurricane occurrence.

Information Sources:

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 it applies, 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. When mandatory deductibles apply, insurers will not sell homeowners coverage 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: Three of the top 10 homeowners insurers have a mandatory hurricane or wind and hail deductible of 2 percent in certain jurisdictions, notably in Sussex County (southern shore). Three states have wind and hail deductibles, which would cover losses from wind from any source.
Hurricane or Wind and Hail Deductible: 1-5 percent. Flat dollar deductibles are available and range from $250 to $2,500. Buybacks are generally available.
Trigger: Hurricane warning or watch issued by the National Weather Service.

Insurance Placement Facility of Delaware: Insures homeowners who have not been able to find coverage elsewhere for windstorm and hail damage.
Basic Windstorm Deductible: $2,000 with a buy back provision.
Where the Deductible Applies: Dwellings within 5 miles of the ocean. In other areas of the state, a $250 all-perils deductible applies.

Information Sources:

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 who can’t find coverage in the private market.

After the 2004 hurricane season, the Florida legislature mandated changes to the deductible program to eliminate homeowners paying a deductible more than once during a hurricane season. To remedy the situation for homeowners who were subject to more than one deductible in 2004, the state created a deductible reimbursement program.


FLORIDA STATEWIDE RESIDENTIAL HURRICANE DEDUCTIBLE PROVISIONS
As of May 2, 2005

Dwelling Limits
Minimum Deductible Allowed
Maximum Deductible Allowed
Mandatory Deductible Offer
Up to $25,000
$250
2%
None
$25,000-$50,000
$250
2%
$500 and 2%
$50,000-$100,000
$500
2%
$500 and 2%
$100,000-$250,000
$500
5%
$500* and 2%
$250,000-$500,000
$500
5%
2%
Above $500,000
$500
unlimited
2%

*For houses valued between $100,000 and $250,000, an insurer is not required to offer the $500 deductible if it guarantees it will not nonrenew to reduce potential loss from hurricanes for one additional renewal period. Insurers are allowed to nonrenew to reduce potential loss from hurricanes.

 

Mobile Homes: Hurricane deductibles for a mobile home property insurance policy may not exceed 5 percent of the property value if the property is subject to any liens and may not exceed 10 percent of the property value if the property is not subject to any liens.

Policies that contain hurricane deductibles must include a statement stating that the policy contains a separate hurricane deductible for hurricane losses, which may result in high out-of-pocket expenses.

In a January 2005 report, the Florida Joint Select Committee on Hurricane Insurance stated that 76 percent of homeowner policies in Florida had a 2 percent deductible. The second most common deductible amount was $500 or less, purchased by 15.9 percent of policyholders. Five percent of policyholders had a 5 percent deductible.

The Citizens Property Insurance Corporation (CPIC): The CPIC offers a full coverage policy in any part of Florida. Agents can only place a risk with CPIC’s Personal Lines Account or the Commercial Lines Account if they are unable to place the business with a private insurance company. Because insurers restrict coverage in the most vulnerable areas, Citizens' all-perils coverage is sold almost exclusively to Dade, Broward and Palm Beach Counties and the Tampa Bay area.

Citizens' High-Risk Account is the high-risk program within the CPIC. It provides wind coverage only and must be supplemented with a policy covering fire and other perils. The program operates in designated areas in 29 of Florida's 35 coastal counties, generally within 1,000 feet of the Atlantic Ocean, Gulf of Mexico or Intercoastal Waterway, and on barrier islands. In Dade, Broward and Palm Beach Counties, the areas east of I-95 extending as much as five miles from the coast, are eligible. All of Monroe County (the Florida Keys) is eligible. The cities of Pensacola, Sarasota, Daytona Beach, South Daytona Beach and Ormond Beach are eligible.

Florida Market Assistance Program (FMAP): The FMAP works as a liaison between the Department of Insurance and insurance companies to help homeowners contact agents and agencies that represent insurers who are accepting new business in their counties.

Information Sources:

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 it applies, 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. When mandatory deductibles apply, insurers will not sell homeowners coverage 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: Five of the top 10 homeowners insurers do not use a hurricane deductible.
Hurricane Deductibles: Percentage deductibles range from 1 percent to 10 percent. Flat dollar deductibles, from $500, are available. In higher risk areas, the minimum wind and hail deductible may be as high as $2,000-$5,000.
Trigger: Hurricane warning or watch issued by the National Weather Service.

Georgia Insurance Underwriting Association (Beach Plan): Insures homeowners who have not been able to find coverage elsewhere for windstorm and hail damage.
Wind and Hail Only Policy Deductible: Standard 1% for wind and hail coverage on dwellings.
Where the Deductible Applies: Coastal communities in six coastal counties and on 23 off shore islands. In other areas of the state, the Georgia Underwriting Association covers wind and hail damage and uses an all-perils deductible of $500.

Information Sources:

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 it applies, 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. 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.

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.
Hurricane deductibles: The standard deductible is 2 percent in coastal areas; up to 15 percent is available in other areas. $1,000-$3,000 deductibles are available.

Louisiana Citizens Property Insurance Corporation: 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. Citizens provides coverage statewide. It offers coverage up to $350,000 for the home, additional structures, contents and liability. Coverage up to $225,000 is available for the dwelling only.
Hurricane deductibles: Standard deductible is $500. Optional deductibles of 2 percent and 5 percent are available, with a corresponding credit for a lower premium. Hurricane deductibles go into effect when the National Weather Service declares a hurricane until 72 hours after the hurricane warning is over.

Information Sources:

MARYLAND 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 it applies, 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. When mandatory deductibles apply, insurers will not sell homeowners coverage 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.

There are no regulations governing the use of hurricane deductibles in Maryland. However, the Insurance Department says that an insurer that uses a hurricane deductible must file it with the rating bureau as optional or mandatory; if mandatory, the carrier must explain the nature of the vulnerability of the area to hurricanes and must identify vulnerable zones. These explanations must be added as endorsements to the homeowners policy.

Voluntary Market: Two of the top10 homeowners insurers do not use a hurricane deductible. One company has a wind and hail deductible, which covers losses from wind from any source.
Hurricane Deductible: Percentage deductibles range from 1-5 percent. Insurers use the higher end of the range of deductibles in coastal areas on the Atlantic and on the eastern and western shores of Chesapeake Bay, which are of moderate to severe risk. Flat dollar deductibles are available. They range from $500 to $2,000.
Trigger: Hurricane declared by the National Weather Service.

Maryland Joint Insurance Association (FAIR Plan): Insures homeowners who have not been able to find coverage elsewhere.
Deductible: All-perils deductible. The standard deductible is $100. The deductible can go up to $2,500.
Where the Deductible Applies: Statewide.

Note: Coastal areas may be subject to a "condition charge," which can be applied if the dwelling is situated on a waterway, coastal area, river or tributary, or island, and is susceptible to certain conditions such wind loss. Generally, this charge is 25 cents per hundred dollars in coverage. For example, on a policy with $200,000 coverage the condition charge will be $500.

By November 2005, the Joint Insurance Association expects to implement upgrades that raise the coverage limit to $1.5 million from the current $500,000 limit, and to add HO-2, 4, and 6 policies.

Information Sources:

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 it applies, 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. 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.

Regular (Voluntary) Market: According to the Division of Insurance, some insurance companies now have mandatory wind loss deductibles that apply to any loss caused by wind. They can either be a flat dollar amount, or a percentage based on the amount of dwelling coverage. Most insurers require minimum windstorm and hurricane deductibles, which vary by company, in Barnstable (Cape Cod), Dukes (Martha’s Vineyard) and Nantucket Counties, or within 1,000-2,500 feet of the coast line. In addition, many homeowners insurers also require coastal properties that may be susceptible to ocean storm surge to purchase federal flood insurance as an underwriting requirement for insurance.
Hurricane or Hurricane/Windstorm Deductibles: Dukes (Martha’s Vineyard), Nantucket and Barnstable (Cape Cod) Counties: 2 percent-5 percent. Other coastal counties and inland counties: 1 percent-2 percent. Flat deductibles, where available: $1,000-$5,000.

Massachusetts Property Insurance Underwriting Association (FAIR Plan): Insures properties where the homeowner has not been able to find coverage elsewhere. The plan uses a windstorm/hail deductible for any type of wind damage.
Windstorm/Hail Deductible: Minimum statewide deductible is $500. A mandatory percentage windstorm/hail deductible is applicable to homeowners properties located in Dukes, Nantucket and Barnstable Counties and to other properties located within a half of a mile of the coast in the rest of the state. Deductibles for these counties and the rest of the state are shown below:


MINIMUM WINDSTORM OR HAIL DEDUCTIBLE

 
Barnstable County
Rest of state
Coverage A amount (dwelling) ($ 000) Entire Dukes and Nantucket Counties Within 1/2 mile of the coast More than 1/2 mile from the coast Within 1/2 mile of the coast
Up to $99
2%
1%
1%
1%
$100 – $199
2
1
1
1
$200 – $299
2
2
1
1
$300 – $399
2
2
1
1
$400 – $499
2
2
1
1
$500 – $599
2
2
2
2
$600 – $699
5
5
2
2
$700 – $799
5
5
2
2
$800 – $899
5
5
2
2
$900 – $999
5
5
2
2
$1,000
5
5
2
2


For homes more than a half of a mile from the coast in the rest of the state: $500-$5,000, depending on the coverage and the amount of the all other perils deductible.

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.

Information Sources:

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 it applies, 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. When mandatory deductibles apply, insurers will not sell homeowners coverage 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 or optional, depending on the insurer.
Hurricane Deductible: Where mandatory, insurers are required by law to provide buyback options to their policyholders, see above. Four of the top 10 homeowners insurers in the state use a wind and hail deductible rather than a hurricane deductible. Hurricane deductibles range from 1 to 15 percent. Flat deductibles range from $500 to $5,000. Wind and hail deductibles range from $250 to $5,000 and up to 5 percent.
Trigger: Hurricane watch or warning issued by the National Weather Service and ending 24 hours after the watch is terminated.

Mississippi Windstorm Underwriting Association (Beach Plan): Insures homeowners who have not been able to find coverage elsewhere in the Coast areas of George, Hancock, Harrison, Jackson, Pearl River and Stone Counties for windstorm and hail damage. Coverage is available up to $1,000,000 for one to four-family dwellings and $250,000 for contents.
Deductible: Special Windstorm and Hail Deductibles: Dwellings including farms and commercial dwellings, such as apartment buildings, excluding one through four-family dwellings: $500, and 2 percent with a $750 minimum, with no premium credit. One through four-family dwellings and trailers and mobile homes: 2 percent when the U.S. Weather Bureau names a storm, $500 minimum.
Where the Deductible Applies: Beach territories in six Coast area counties, three of which are on the coast.

Mississippi Residential Property Insurance Underwriting Association: Insures owners of one and two-family dwellings who have not been able to find coverage elsewhere for windstorm, hail and fire and extended coverage, except in the three coastal counties closest to the shore (Hancock, Harrison and Jackson Counties). Coverage is available up to $150,000 on buildings and $75,000 on contents.
Deductible: All perils: $500.
Where the Deductible Applies: Entire state.

Information Sources:

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 it applies, 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): Insures homeowners who have not been able to find coverage elsewhere.
Hurricane Deductibles: These deductibles are mandatory.
Three zip codes in Ocean County and all other areas of the state over 5 miles from the ocean—$500 "all perils" deductible only.
In 74 zip codes in coastal counties: more than 2 miles from the ocean—2 percent hurricane deductible and $500 “all perils” deductible; between 1 and 2 miles from the ocean—2 percent hurricane deductible and $1,000 “all perils” deductible; within one mile of the ocean—3 percent hurricane deductible and $1,000 “all perils” deductible.
In 18 zip codes on the coast: 4 percent hurricane deductible and $1,500 “all perils” deductible.
Trigger: Hurricane declared by the National Weather Service (NWS) and winds reach 74 mph or more anywhere in the state. The trigger is in effect beginning 12 hours before
the NWS measurement until 12 hours after the last measurement.
Reductions in the Deductible: The hurricane deductibles may be reduced if the homeowner makes improvements to the house to protect it from hurricane damage. There are 5 specific improvements. Two of them—roofing supports, decking and shingles that can withstand 85 mph wind and wooden roof trusses connected to exterior walls by metal hurricane straps—are always required for a deductible reduction. (See Consumer Guide: Hurricane Deductible Program- http://www.njiua.org/forms/HurrBrochure.pdf)

Windstorm Market Assistance Program (WindMAP): The WindMAP is a network of insurance companies, agents and brokers who help qualified homeowners in the 92 coastal region zip codes that are specified in the FAIR Plan obtain homeowners coverage. It is administered by the FAIR Plan. Companies participating in the WindMAP receive applications from the FAIR Plan on a rotating basis. Applicants are not guaranteed placement through the WindMAP, but if rejected are offered coverage in the Fair Plan.
Hurricane Deductible, Trigger, and Reductions in the deductible for the WindMAP are identical to those shown above for the FAIR Plan.

Information Sources:

NEW YORK 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 it applies, 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. 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.

Regular (Voluntary) Market: Generally mandatory in coastal areas.
Hurricane Deductibles: Largest companies have a mandatory 5 percent deductible within one mile of the shore.
Where the Deductible Applies: The five boroughs of New York City (Manhattan, Bronx, Brooklyn, Queens, and Staten Island) and Westchester, Nassau and Suffolk Counties.

Lower deductibles may be used in inland areas of the coastal counties and elsewhere in the state. Some dollar deductibles are available, generally $500-$1,000.

If the policy contains a hurricane deductible, insurers must send the policyholder a disclosure statement. Specifics 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 "Consumers" in the Consumer Shopping Guide for Homeowners and Tenants Insurers.

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 mandatory deductibles range from 1 percent to 5 percent of the insured amount, with optional deductibles available at higher percentages. The event which triggers the use of these deductibles varies widely 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 $500 deductible for all windstorm loss.

New York Property Insurance Underwriting Association (FAIR Plan): The plan insures properties where the homeowner cannot find coverage elsewhere. “Extended coverage” includes windstorm coverage. The plan operates on two levels: properties within 1,500 of the shore and in the rest of the state. For properties within 1,500 feet of the shore, windstorm coverage is included, but the owner must have a licensed engineer or architect inspect the property and complete a form verifying that the home has reinforcements that minimize wind damage. If the owner cannot comply, the windstorm coverage is deleted.
Hurricane Deductibles: Standard: $250. Optional: $500, $1,000, $2,500.

Coastal Market Assistance Plan (C-MAP): The C-MAP helps policyholders living along the coast locate an insurer willing to provide homeowners coverage. Homeowners must have made three attempts to secure coverage from the C-MART (insurers in the regular market) before they can apply to the program. Properties must be one-to-four family, owner-occupied homes, located on Long Island’s South Shore and the shore areas of Brooklyn, Queens, Staten Island and Long Island’s Forks, within one mile of the shore (salt-water ocean, sound, bay or inlet); Long Island’s North Shore, the Bronx and Westchester, within 2,500 feet of the shore.

C-MART (The Coastal Market Assistance Reference Table): C–MART is a list of insurers in the regular market that are actively writing homeowners insurance in coastal areas. It is provided by the New York Insurance Department.

Information Sources:

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 it applies, 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. 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.

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): Insures properties where the homeowner has not been able to find coverage elsewhere. Coverage of up to $1.5 million is available for private dwellings. All property insurers in the state must participate in the plan. Windstorm coverage is available only on dwelling policies.
Deductibles: Standard $500.
Where the Deductible Applies: Statewide except for Beach Plan areas.

North Carolina Insurance Underwriting Association (Beach Plan): Insures properties where the homeowner has not been able to find coverage elsewhere for windstorm and hail damage. Coverage of up to $1.5 million is available for private dwellings. All property insurers in the state must participate in the plan.
Deductibles: For HO3, HO2 and HO8 insurance policies with under $100,000 in coverage, minimum deductible is $500; with $100,000-$249,000 in coverage, minimum deductible is $1,000; with $250,000 and more in coverage, minimum deductible is $2,000. For HO6 and HO4 policies with contents under $50,000, minimum deductible is $500; with contents from $50,000 to $100,000, minimum deductible is $1,000; with contents greater than $100,000, minimum deductible is $2,500.
Where the Deductible Applies: All territory in the state east of the Intercoastal Waterway, known as the Outer Banks, and coastal areas in 18 coastal counties.

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 it applies, 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. 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.

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: The association insures properties where the homeowner has not been able to find coverage elsewhere for windstorm and hail damage. Windstorm damage can be from any type of wind. All insurers writing property insurance in the state must participate in the plan.
Deductibles: Standard 1 percent, optional 2 percent; for wind and hail coverage only. Properties included are dwellings valued up to $1 million, mobile homes with standard tie-downs, condo units, (also valued up to $1 million), and commercial properties (up to $2.5 million).
Where the Deductible Applies: By statute, certain coastal communities in five counties including islands. In general, the areas covered are defined geographically, i.e., east of the Intracoastal Waterway.

Note: Insurers in the regular market may decline to provide wind and hail coverage in the designated Coastal Area.

Market Assistance Plan: A program within the South Carolina Department of Insurance that helps homeowners find insurance. Policies and deductibles are the same as in the voluntary market.

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 it applies, 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. When mandatory deductibles apply, insurers will not sell homeowners coverage 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 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. Four insurers have mandatory hurricane deductibles for coastal properties. Range: 1-5 percent of the policy limit. 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): Insures homeowners throughout the state who have not been able to find coverage elsewhere. The plan does not have a hurricane deductible. The deductible is for all perils: $250 for homes with values up to $100,000; $500 for homes valued at $100,001 to $250,000 and $1,000 for homes over $250,000, up to a limit of $400,000.

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 it applies, 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. 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.

Note: By Texas law, the deductible is for windstorm and hail damage from any type of wind storm.

Regular (Voluntary) Market: This is the standard available through the regular market: Windstorm and Hail Deductible: 1 percent-2 percent minimum in coastal areas and the Gulf of Mexico. Up to 5 oercent and $100-$1,000 available, but most policyholders opt for the 1 percent-2 percent.

Texas Windstorm Insurance Association (TWIA): Insures properties where homeowners have not been able to find coverage elsewhere. Only windstorm, hurricane and hail coverage is available. (Coverage for other perils such as fire and theft must be purchased from the regular market or the FAIR Plan, discussed below.) The deductible applies to damage from any wind and hail, whether from a hurricane or other storm.
Windstorm, Hurricane and Hail Deductibles: Standard deductible is 1 percent per item (the 1 percent applies separately to the dwelling and the contents) with a $100 minimum. Other deductibles available to homeowners are: flat $100 or $250, which would have higher premiums; larger deductibles of 1.5 percent, 2 percent, 2.5 percent, 3 percent, 4 percent or 5 percent, in exchange for a lower premium.
Where the Deductible Applies: Only in the 14 coastal counties and five communities in Harris County (Galveston Bay).

Texas Fair Access to Insurance Requirements Plan Association (FAIR Plan): Insures qualified homeowners who cannot obtain insurance from licensed insurance companies. Applicants must have been declined by at least two companies. There is a two-year limit, after which homeowners must reapply. In addition to windstorm, hurricane and hail coverage, limited homeowners coverage is available. The deductible applies to damage from any wind and hail, whether from a hurricane or other storm.
Windstorm, Hurricane and Hail Deductibles: Standard deductible is 1 percent of policy limits with a $100 minimum.
Where the Deductible Applies: Statewide except 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]).

Market Assistance Program: serves as a liaison between the Department of Insurance and insurance companies to help eligible homeowners find insurance.

Information Sources:

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.
Extreme
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.



TOP 2004 HURRICANES

Hurricane
Insured losses ($ billions)
Charley
$7.48
Frances
4.60
Ivan
7.11
Jeanne
3.66
Total insured losses
Sixteen states and Puerto Rico
22.90
Florida
19.00
Total number of claims
Sixteen states and Puerto Rico
2.26 million
Florida
1.65 million
Source: ISO, PCS Unit.



HURRICANES AND RELATED DEATHS IN THE UNITED STATES, 1985-2005

Year
Made landfall as hurricane in the U.S.
Hurricanes
Deaths (1)
1985
6
6
30
1986
2
4
9
1987
1
1
0
1988
1
2
1
1989
3
6
56
1990
0
1
0
1991
1
1
18
1992
1
4
27
1993
1
1
3
1994
0
1
8
1995
3
3
29
1996
2
3
59
1997
1
1
6
1998
3
10
23
1999
2
8
60
2000
0
8
4
2001
0
9
42
2002
1
4
5
2003
2
7
24
2004
6 (2)
9
59
2005 (3)
6
14
1,000+

(1) Includes fatalities from high winds of less than hurricane force from tropical storms.
(2) One hurricane (Alex) is considered a strike but not technically a landfall.
(3) Premliminary. As of December 2, 2005.

Source: Insurance Information Institute from data supplied by the U.S. Department of Commerce, National Oceanic and Atmospheric Administration, National Hurricane Center; ISO.


THE TEN MOST COSTLY HURRICANES IN THE UNITED STATES
($ millions)

   
 
Estimated insured loss (1)
Rank
Date
Location
Hurricane
Dollars when occurred
In 2004 dollars (2)
1
Aug. 25-29, 2005
AL, FL, GA, LA, MS, TN
Katrina
$38,100
$38,100 (3)
2
Aug. 23-24, 25-26, 1992
FL, LA, MS
Andrew
15,500
20,869
3
Aug. 13-15, 2004
FL, NC, SC
Charley
7,475
7,475
4
Sep. 16-21, 2004
AL, FL, GA, OH, PA, NY, NC, 8 other states
Ivan
7,110
7,110
5
Sep. 17-18, 21-22, 1989
U.S. Virgin Islands, PR, GA, SC, NC, VA
Hugo
4,195
6,391
6
Oct. 24, 2005
FL
Wilma
6,100
6,100 (3)
7
Sep. 20-26, 2005
AL, AR, FL, LA, MS, TN, TX
Rita
4,700
4,700 (3)
8
Sep. 5, 2004
FL, GA, SC, NC, NY
Frances
4,595
4,595
9
Sep. 15-25, 2004
PR, FL, PA, GA, SC, NY
Jeanne
3,655
3,655
10
Sep. 21-28, 1998
PR, U.S. Virgin Islands, AL, FL, LA, MS
Georges
2,900
3,361

(1) Property coverage only.
(2) Adjusted to 2004 dollars by the Insurance Information Institute.
(3) ISO preliminary estimate as of November 2005, expressed in 2005 dollars.

Source: ISO; Insurance Information Institute.


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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