30 Mar Storm Deductibles – Do Your Clients Understand How They Work?
As you are aware, insurance policies have many different terms. Since there is a chance that clients may not totally understand these terms, policies typically have a section dedicated to defining them. The hope is that the client will read their policy and will contact the agency if they have any questions. Many will consider this wishful thinking, although in the vast majority of states the client does have a duty to read their policy. In the off chance that the client did not read their policy (lol), is there anything you can do to help them better understand their coverage and how it works?
Let’s look at deductibles, especially hurricane or windstorm deductibles. There are 19 states, plus the District of Columbia, that have some form of hurricane or windstorm deductible. These states are as follows: Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Virginia, and the District of Columbia.
Standard homeowner policies include a deductible, which is the amount of money the client must pay toward a loss before the insurance company starts to pay. Most clients probably have a pretty good handle on this. Homeowner policies for properties in areas potentially impacted by a hurricane may include hurricane and windstorm insurance deductibles as additional requirements beyond the regular deductible. Hurricane deductibles were first initiated in 1992, but they became more widely accepted after Hurricane Katrina’s $64 billion in insurance losses in 2005.
Among the key issues involving hurricane deductibles, one is that it is not a flat dollar amount but instead expressed as a percentage. The issue is, a percentage of what? Is there confusion on how this deductible applies? I know of insurance professionals who believed that the hurricane deductible was the percentage that the client had to pay of the loss. Using a 5 percent example, they believed that with damages of $50,000, they would have to pay 5 percent or $2,500 of the loss. Some of these professionals found out at the time of their claim that this was not how the hurricane deductible worked. The reality is that the 5 percent is of the home’s value (Coverage A) and thus with a home worth $400,000, this translated into a deductible of $20,000 (5 percent of $400,000). Quite a difference!
The typical hurricane deductible is between 1-5 percent of the home’s insured value, although policies in some vulnerable coastal areas could have an even higher deductible.
There are essentially three main storm/wind deductibles (windstorm, named storm and hurricane). Of the three, the broadest is the windstorm deductible. It applies whenever damage is caused by wind and this includes not only hurricanes and other tropical storms, but also winter nor’easters and summer thunderstorms. It certainly sounds like any kind of wind damage will prompt the application of this deductible.
For many insurance professionals, this can be a little confusing. Just think how your client feels about this. Since I am sure you agree that it is better for the client to understand this before a loss (as opposed to after the loss), look for opportunities where you can educate your clients on this important issue. This can involve including the definitions of key insurance terms in the proposal. Also, if your agency has a newsletter or a spot on your website where issues such as this are addressed, find a way to bring this information to your client’s attention. Social media is another educational approach that may not only inform your client’s on how deductibles work, but may also help to generate new business opportunities by showing the value your agency provides.