Irene Raises Hurricane Deductible Questions in Hard-Hit Northeast States

By Young Ha | September 7, 2011

New York and New Jersey regulators said recently that hurricane deductibles should not apply on homeowners’ insurance policies for Irene damages in their states. That’s because Irene was downgraded and designated as a tropical storm, not a hurricane, when it reached those states, according to the officials.

They said standard dollar deductibles should apply instead of the hurricane deductibles, which are based on a percentage of a property’s insured value rather than a set dollar amount. This distinction could save the insureds whose homes suffered wind damage from Irene thousands of dollars in out-of-pocket costs.

“While Irene obviously started out as a hurricane, by the time it reached New York it was a tropical storm, with winds in the 60 mph range,” New York Superintendent of Financial Services Benjamin Lawsky stated on Sept. 1. “This makes a big difference for homeowners because it means that special hurricane deductibles will not kick in, saving them thousands of dollars.” (A storm system needs to have a wind speed of 74 mph or greater to be categorized as a hurricane according to the Saffir–Simpson Hurricane Scale.)

Big Difference

Homeowners should not have to pay this percentage-based deductible and insurers should be aware that the department will make sure they are not hitting consumers with a hurricane deductible, which is often a full five percent of the insured property’s value, according to Lawsky.

The New York Insurance Department said it has spoken to a number of insurers that agreed that Irene was a tropical storm in New York and confirmed that hurricane deductibles would not apply. “We believe this would apply to all home insurers providing coverage in New York,” the department’s communications director David Neustadt told Insurance Journal. “As to savings, that would depend on the individual policy, the insured amount of the individual property and the amount of damage. Different companies have different deductibles. But it could be substantial.”

New Jersey Banking and Insurance Department also said hurricane deductibles would not apply. “Accordingly, no mandatory or optional hurricane deductible should be applied to the payment of claims for property damage attributable to Hurricane Irene. The application of any mandatory or optional hurricane deductible in this instance shall be considered a violation of New Jersey Administrative Code,” Commissioner Thomas Considine stated on Aug. 29.

In Connecticut, hurricane deductibles are permitted only on coastal properties. And on some policies — and it varies by company — the hurricane deductible is triggered when a mere hurricane warning is issued for the state. This was the case with Irene, even though it was downgraded by the time the storm hit. Now it is up to the insurers whether they want to apply the hurricane deductible, said Donna Tommelleo, a spokeswoman for the Connecticut Insurance Department.

In wake of Hurricane Irene, Connecticut officials have been negotiating with insurers to waive hurricane policy deductibles for coastal homeowners whose properties were damaged or destroyed.

Insurance Commissioner Thomas Leonardi said the companies that have either waived the hurricane deductibles or have coastal policies in which their triggers have not been met represent about 80 percent of homeowners’ insurance market in Connecticut.

Insurers that state officials said have waived the hurricane deductible in Connecticut include: ACE, Allstate, Bunker Hill, Connecticut FAIR Plan, Farm Family, Farmers Insurance, Fidelity National, Fireman’s Fund, Hartford, Liberty Mutual, MetLife, MiddleOak, New London County Mutual, Privilege Underwriters Reciprocal Exchange, Quincy Mutual Fire Insurance Company, Safeco, Tower, Travelers, Utica National, Utica First, Universal North America, and Vermont Mutual.

In Vermont, another state hard hit by Irene, hurricane coverage does not have deductibles and therefore the steps taken in New York and New Jersey would not be germane, said David Mannis, information manager for the Vermont Department of Banking, Insurance, Securities and Health Care Administration.

According to the Insurance Information Institute, the District of Columbia and these 18 states allow 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 D.C.

Hurricane deductibles typically range from one to five percent but can be higher in coastal areas, according to the III.  In some cases, insurers make them mandatory for homes in high-risk coastal areas.

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Latest Comments

  • September 12, 2011 at 2:26 pm
    Rusty says:
    All of the foregoing comments point up the fact that what we need in our industry is standardization of storm deductibles just like there are standard definitions of other per... read more
  • September 12, 2011 at 1:41 pm
    JW says:
    I live in the state of MD, Prince Georges Cty and I have Allstate homeowners insurance. After Irene blew out of town, I filed a claim for roof damages resulting from a tree fa... read more
  • September 9, 2011 at 11:18 am
    Rod says:
    It seems in Connecticut, for many policies, the trigger is "hurricane warning" status. If the Hurricane Warning is lifted greater than 24 hours before the damage occurs, the h... read more
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