CID: Homeowners Wind, Hurricane and High Windstorm Deductibles

Homeowners Wind, Hurricane and High Windstorm Deductibles



Connecticut Insurance Department
George M. Reider, Jr.
Insurance Commissioner
A Report on
Homeowners Insurance Policy
Wind, Hurricane and High Windstorm Deductibles
September 1999

This is a condensed version of a report issued by the department September 20, 1999. The condensed version does not include a copy of the wind, hurricane and high windstorm deductible survey or examples of actual endorsements, consumer notices and declarations pages. A copy of the printed report is available from the Connecticut Insurance Department, Property and Casualty Division. The cost for the printed report is $15.00. Please make checks payable to "Treasurer – State of Connecticut.

In June 1999, the Connecticut Insurance Department surveyed insurance marketing Homeowners insurance policies in order to gather information on separate wind deductibles that apply to Homeowners insurance policies in Connecticut. All licensed insurance company groups that annually write greater than $2.5 million of Homeowners insurance premium in Connecticut completed the survey. Insurers provided information on wind and hurricane deductibles that are issued to Connecticut residents. Survey questions covered the type of wind deductibles that are available to Connecticut consumers, the size of the deductibles, the "trigger" for the deductible and the type of consumer information provided.

Insurance companies that participated in the survey account for over 90% of the Homeowners insurance premium written in Connecticut. Thirty-two insurer groups consisting of 97 licensed insurance companies responded with detailed information. The survey data reflects coverage and explanatory material that will be provided to most Connecticut consumers.

The following terms have specific meaning in this report:

WIND DEDUCTIBLE - a separate deductible applicable to loss caused by wind.

HURRICANE DEDUCTIBLE - a separate deductible applicable to loss caused by wind due to a defined hurricane or tropical windstorm.

HIGH WINDSTORM DEDUCTIBLE - a separate deductible applicable to loss caused by wind in excess of a defined wind speed, but not limited to a "hurricane" windstorm.

Executive Summary

  • More than 90% of the Homeowners insurers offer some type of separate wind, hurricane or high windstorm deductible.
  • Only ten groups or 31% of the insurer groups offer a separate hurricane deductible.
  • Only three groups or 9% of the insurer groups surveyed offer a separate high windstorm deductible.
  • Most insurers provide consumers with a consumer notice describing the hurricane or high windstorm deductible. If an insurer requires a hurricane or high windstorm deductible, a consumer notice must be provided.
  • Most consumer notices include an example explaining how the deductible will be applied.

Current Regulation/Coverage Overview

Connecticut law requires insurance companies to treat all Connecticut homeowners fairly. The department does not permit insurance companies to implement a mandatory hurricane deductible simply based upon the risk’s geographic location. In accordance with the provisions of the Connecticut Regulations on the Availability of Insurance on Real Property Regardless of Location, §38a-824-1 to 38a-824-3, and subject to the Department’s approval, companies may implement a mandatory hurricane deductible only as part of the company’s coastal exception plan. The Department’s position on unfair discrimination with respect to coastal risks is provided in Bulletin PC-24. Bulletin PC-24 (PDF 116 kb) identifies the factors needed to support approval of a coastal exception plan, such as a company’s over concentration of coastal risks and their potential impact on the company’s financial solvency.

Homeowners insurance policies insure owner-occupied homes against damage to building and contents and against legal liability for bodily injury or property damage caused by an insured. All Homeowners policy losses are subject to a deductible amount that applies to covered building or contents losses, regardless of the cause of the loss. This report provides information on separate deductibles that apply to loss caused by wind, hurricane or high windstorm. These deductibles have become more common since the catastrophic hurricane losses in Florida and the East Coast in the early 1990s. Separate deductibles are used to control an insurer’s exposure to catastrophic loss, moderate the price of coverage, encourage homeowner safety and improve coverage availability.

Some companies have specific underwriting requirements for coastal risks, such as hurricane storm shutters, flood policies or building code standards. If a risk does not meet these coastal underwriting requirements, then a hurricane deductible may be implemented in lieu of meeting the coastal underwriting requirements. The Department does not approve hurricane deductibles in an amount higher than 5% of the Coverage A – Dwelling Limit. Any company that adds a hurricane deductible on a renewal of an existing policy must send a consumer notice sixty days in advance of the renewal date. The notice is reviewed by the Insurance Department for compliance with law, content and clarity.

Summary of Survey Responses

Survey Participants – Size and Market Share

Over 90% of the Connecticut Homeowners insurance market is covered by the survey. Over 75% of the companies writing business in Connecticut provided survey responses. One hundred percent of the companies surveyed completed the survey.

  • Thirty-two groups comprised of 97 insurance companies were surveyed.
  • Each group has annual Homeowners premium greater than $2.5 million.
  • The groups surveyed write 92% of the total annual Homeowners premium in Connecticut.
  • The groups surveyed represent 76% of the insurers writing Homeowners insurance in Connecticut.

Type of Separate Deductible

Most insurers offer a separate deductible for wind. Only 31% of the insurers offer a hurricane deductible. Only 9% offer a high windstorm deductible.

  • Most insurers, 91%, have some type of separate wind, hurricane or high windstorm deductible.
  • Twenty-two groups or 69% of the insurer groups surveyed have a wind deductible.
  • Ten groups or only 31% of the insurer groups have a hurricane deductible.
  • Three groups or only 9% of the insurer groups surveyed have a high windstorm deductible.

Deductible Terms Defined

"Wind" is not usually defined in either the policy or in wind deductibles. Most endorsements define the term hurricane or high windstorm. In the absence of a specific definition, the text of the endorsement makes the meaning of the terms clear.

  • Nineteen groups or 86% of the groups that write a wind deductible use a separate endorsement for the wind deductible.
  • Five groups or 56% of the groups that write a hurricane deductible define the term in a separate endorsement.
  • 100% of the groups that write a high windstorm deductible define the term in a separate endorsement.

Consumer Notice

Most insurance companies provide consumers with an explanation of the hurricane and high windstorm deductibles. In most cases, an example of how the deductible works is included in the explanation.

Hurricane Deductible

  • Eight groups or 80% of the groups that write a hurricane deductible send a consumer notice to the policyholder.
  • Seven groups or 88% of the groups that send a consumer notice include an example of how the hurricane deductible works.
  • Six groups or 75% of the groups that send a consumer notice provide underwriting requirements that pertain to the hurricane deductible.

High Windstorm Deductible

  • Two groups or 67% of the groups that write a high windstorm deductible send a consumer notice to the policyholder.
  • One group or 33% of the companies that send a consumer notice include an example of how the high windstorm deductible works.
  • One group or 33% of the companies that send a consumer notice provide underwriting requirements that pertain to the high windstorm deductible.

Size of Deductibles

Deductibles are either a flat dollar amount or a percentage of the dwelling’s amount of insurance. Flat deductibles range from $500 to $10,000. Percent deductibles range from 1% to 5% of the dwelling coverage amount. Since their introduction, the Insurance Department has required insurers to limit percent deductibles to a maximum of 5%.

Flat Dollar Deductibles

  • Of the nineteen groups that write wind deductibles, 68% have flat dollar deductibles that range from $500 to $10,000.
  • Of the ten groups that write hurricane deductibles, only two groups offer flat dollar deductibles, which range from $100 to $5,000.
  • Of the three groups that write high windstorm deductibles, two groups have flat dollar deductibles that range from $1,000 to $10,000.

Percent Deductibles

  • Of the nineteen groups that write wind deductibles, eighteen groups have percent wind deductibles that range from 1% to 5% of the dwelling coverage amount.
  • Of the ten groups that write hurricane deductibles, all offer percent hurricane deductibles that range from 1% to 5% of the dwelling coverage amount.
  • Of the three groups that write high windstorm deductibles, two groups have percent deductibles, one with a 2% deductible and one with a 3% deductible.

Policy Declarations Page

The Homeowners policy declarations page describes the property insured, the amount of insurance and other coverage information. The standard deductible, wind, hurricane and high windstorm deductibles are identified on the declarations page. When a percent deductible is applicable, 50% of the companies issuing a percent hurricane deductible show the percent and the associated dollar amount of the deductible on the declarations page. One-third of the companies using percent high windstorm deductible show both the percent and dollar amount of the deductible.

  • Out of the groups that write a percent hurricane deductible, five groups or 50% show the actual dollar amount for the percent deductible on the Declarations page.
  • Of the groups that write a percent high windstorm deductible, one group or 33% show the actual dollar amount for the percent deductible on the Declarations page.

Deductible "Trigger"

The triggers for the hurricane and high windstorm deductibles are declarations of a "hurricane watch" or "hurricane warning" by the National Hurricane Center or the National Weather Service for the state and actual sustained wind speeds as measured by these organizations. The National Hurricane Center’s definitions of "hurricane watch" and "hurricane warning" are included at the end of this report. The Saffir-Simpson Hurricane Scale is a 1-5 rating based on the hurricane's present intensity. The Saffir-Simpson Scale is included at the end of this report.

Trigger for Hurricane Deductible

  • Three groups or 30% use "hurricane watch" issued by the National Hurricane Center for the state.
  • Three groups or 30% use "hurricane warning" issued by the National Hurricane Center for the state.
  • Five groups or 50% use sustained winds of +74 mph as measured by the National Weather Service for the state.
  • One group or 10% uses sustained winds of +96 mph by National Weather Service for state.
  • One group or 10% uses tropical cyclone, defined as a storm that was or becomes hurricane, and a watch or warning is issued by National Weather Service for state or border state.
  • One group or 10% uses declared hurricane by the National Weather Service for state.

Trigger for High Windstorm Deductible

  • One group or 33% uses hurricane watch issued by National Hurricane Center for state.
  • Two groups or 67% use sustained winds of +74 mph by National Weather Service for state.
  • One group or 33% uses a latitude/longitude point for a declared hurricane.

Duration of the Deductible

Some hurricane deductibles apply prior to and for a period of time after the declaration of a hurricane. No group has a time period for the high windstorm deductible.

Of the nine groups that have a time period for the application of the hurricane deductible:

  • Three groups or 33% use a period ending 24 hours following Hurricane watch.
  • Two groups or 22% use a period ending 72 hours following Hurricane watch.
  • Two groups or 22% use a period within 24 hours before or after a declared hurricane for the state.
  • One group or 11% uses a period where there is a loss by hurricane or wind which is declared a hurricane within 24 hours of loss.
  • One group or 11% uses a period within 12 hours before or after a declared hurricane for the state makes landfall in the state.
  • One group or 11% uses a period within 12 hours after a hurricane makes landfall in the state.

APPENDICES:

Regulation - Availability of Insurance on Real Property Regardless of Location

Bulletin PC-24 - Availability of Insurance in Urban Areas and Coastline Neighborhoods

Glossary of National Hurricane Center Terms

Saffir-Simpson Hurricane Scale

 
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Content Last Modified on 11/17/2008 11:30:43 AM