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I wasn’t planning on writing about hurricane season again, but circumstances made it feel like the right thing to do. This hurricane season is already memorable, and it’s still got over two months to go. The good news is that it’s almost over. The bad news? This is the time when the Atlantic gets most active. At one point over the weekend, there were three hurricanes. One in the Gulf of Mexico and two in the Atlantic. What makes this season memorable?
You get the point. It’s a big hurricane season and it’s not over yet. We still don’t know exactly what Jose will do and that makes it important to understand some hurricane related policy provisions.
Homeowners and commercial property policies have deductibles. Without diving too deeply into deductibles, the deductible is an important part of both an insurance company’s and the insured’s risk management program. The deductible represents how much of the risk that the insured retains. Most policies have a dollar amount deductible that the insured chooses. When it comes to hurricane prone risks, the home or commercial building will often have a specific deductible for the peril of hurricane. In some areas, a company may use an endorsement that broadens that to named storm deductible.
Here’s where we owe our customers some time and help. The hurricane deductible is usually a percentage. In many cases, it is a percentage of the total insured value of the home or building. That is to say that if the insured value of the dwelling is $100,000, and there is a 5% deductible, the total deductible amount is $5,000.
Consider the hurricane deductible on a large condominium building along the Florida coast. It is reasonable that the building could be valued at $10,000,000. If this building has a 5% hurricane deductible, they are retaining the first $500,000 of the covered loss. That’s a big deductible. Now consider that there are some property policies that cap the available insurance, no matter what the actual replacement cost may be. Let’s not get into the problem that the insured may have in getting coverage for their entire building.
Have you ever considered how deductibles apply? Most of the time there is a provision somewhere in the policy that reads to the effect that in circumstances where multiple deductibles could apply, only one, the greatest, deductible will apply. Some homeowners policies with hurricane deductibles may apply a hurricane deductible to both the dwelling and the personal property. What’s that mean? It means that the deductible turns into 5% of the $100,000 dwelling and 5% of the $50,000 personal property. That means that the total deductible could be $7,500. We won’t go into our commercial property policy, but just think about the policy with multiple high value buildings.
Let’s get past some of that deductible talk and get into some other issues to deal with. In some hurricane prone areas, the homeowners’ or commercial property insurer may exclude wind and hail entirely. In some states, the rules will only allow insurers to exclude wind in a wind-only eligible area, which means that there is an area where a wind-only policy is available. If you’re in a coastal state, there is likely an insurer that is in some way connected to the state, which provides wind-only coverage. This may be a little late for some, but here is a list of wind-only insurers.
We can’t let the conversation about hurricane season go without one more topic. Let’s talk about flood. I know. I’ve written about it before. I know. It’s still in the hands of Congress. Without getting too deeply into my feelings about NFIP, flood and the private market, I’d like to simply say that your customers need flood coverage. Between the two hurricanes so far this year, the largest uninsured cause of loss will have been flood. I had this conversation with some folks this weekend. Everyone should get flood insurance. I don’t care that the map says that you’re not in a flood zone. You’re in a flood zone. Just because some government agency said that you’re not in a hazard flood zone doesn’t mean that your land can’t flood. Make it a practice of offering flood coverage on any policy. Not for nothing, the more flood policies that are written, the more attractive the risk can be to the standard market. The more attractive the risk is, the better the rates are. You see where I’m going with this.
According to some, the uninsured flood losses for Hurricane Harvey may exceed $25 billion. That’s a huge number that means nothing to us. Let’s say it this way. That means that $25 billion worth of family homes have flood damage to the house and to their stuff. If the average home in Houston sold for $250,000, that’s about 100,000 families. That means that they’ll have a lot of stuff that’s damaged and won’t be replaced because they simply won’t have the money because no one is there to indemnify them.
I have one last thought for you and this one applies especially in Florida. Now that the hurricane is past, think about who your customer is. Winter in Florida means that somewhere near 1,000,000 seasonal residents come to our state to escape the harsh winters in their homes. We affectionately call them Snowbirds. How many of your customers are snowbirds? The return of the snowbirds won’t start in earnest for another month. What if they don’t know who to call to ask about their property? Many of them don’t necessarily have anyone that will check on their Florida home. Let’s just make things a little more difficult. Many snowbirds live in manufactured homes. My grandparents had a winter home in Zypherhills for a number of years. I know that they would appreciate someone checking on their property for them before they made their October road trip from New York to Florida.
What’s the bottom line? Our customers need us to pay attention to their needs in this time of trouble for them. Remember that people buy insurance to protect them from some of the most difficult days that they may face in their lives. They don’t need their insurance company giving them unwelcome surprises when they discover the damage. They need us to help them through the difficult days and help them to find the good days to come.