2 Hurricane Season Tips

June 1 marks the beginning of the most insurance-y time of the year.

It’s the beginning of the annual Atlantic Hurricane Season. Oh yes. It’s that time of year.

Since hurricane season only comes around once every year (and stays for six months) now is the best time to pay homage to this grand time of year and make sure that we think insurance thoughts as we prepare ourselves for the possibility of an evening five mile per hour drive from Florida to North Georgia, or coastal Texas to Oklahoma, or most of Louisiana to somewhere (anywhere) else.

Since most insurance customers aren’t currently building their homes or buildings, there’s really no need to talk about how to harden a building against windstorm, unless, of course, you want to talk about secondary water resistance, hurricane straps for roof-wall connection, or impact-resistant glass. We actually do want to talk about impact-resistant glass, but only to show those videos of the company testing their windows by propelling boards at them at speeds over 100 miles per hour. Maybe another time.

What we really need to talk about are the insurance issues that come up related to this time of year. As we usually do, I want to make sure to remind you that any policy wording that is quoted here comes from forms written and filed by ISO. These policies may be identical to the policies that you are dealing with, but they also may not. Make sure that you read and understand the actual policies that apply in your world, whether you work at an insurance company, are an insurance agent, or happen to be an insurance consumer.

Hurricane deductibles

In general, insureds hate their deductibles. I know because I hate deductibles. On the other hand, I understand the reason for deductibles, and I understand how my deductibles apply so at least I hate them with knowledge of what I’m hating. And I only hate them when I have to deal with them. When I’m working on insurance things, I really like deductibles.

That’s why we need to address the most important deductibles for this time of year. We will need to deal with both the hurricane and wind and hail deductibles because they are different, and that difference is significant.

Let’s start at the beginning. A deductible is a way for the insurance company to share in the risk management of certain risks. A deductible is a way to give the insured some skin in dealing with certain losses. The deductible is a great tool to cause the insured to take more care of certain property. For example, there was an insured who had a series of relatively small claims, each one less than $5,000. They felt really safe in submitting those claims, especially when they had a $250 deductible.

After two years of several of these claims, we decided to raise their deductible on a renewal to $2,500. You might say that it seems rough to 10x their deductible. An analysis of the pattern of claims showed us that the insured was careless with their equipment, which was causing these small claims. The increased deductible was a way to motivate them to take better care of their equipment and avoid those smaller losses. The company’s fear was that these smaller losses would one day morph into a couple of very large losses. As we sometimes say, frequency breeds severity.

Whether you’re dealing with a hurricane deductible, or windstorm or hail deductible, the ISO endorsement reads the same as to how the deductibles apply.

Windstorm or Hail (Hurricane) Deductible Calculations

A (Hurricane) Deductible is calculated separately for, and applies separately to:

Each building that sustains loss or damage;
The personal property at each building at which there is loss or damage to personal property; and
Personal property in the open.

This is a change to the unendorsed policy because it reads, in part, like this.

When the occurrence involved loss to more than one item of Covered Property and separate Limits of Insurance apply, the losses will not be combined in determining application of the Deductible. But the Deductible will be applied only once per occurrence.

For most losses, only one deductible applies without concern for how many different types of property are damaged. It doesn’t matter the number of buildings or the number of locations where personal property is damaged. There’s only one deductible. Except when you add a hurricane or windstorm deductible form. Then we calculate the deductible based on all of the items that are damaged.

Also, that deductible is a percentage deductible. The deductible amount is a percentage of the value of the property. Sometimes, that’s the limit of insurance and sometimes that’s the replacement cost of the property. So if you have a $1,000,000 building and $500,000 in personal property with a 5% hurricane deductible, if both the building and personal property are damaged, the total deductible is $50,000 for the building and $25,000 on the personal property. This is a big difference from the $5,000 or $10,000 deductible that many larger insureds have to deal with. Many insureds are going to deal with smaller amounts, but this is how we make the point.

These deductibles are no joke.

Now, here’s the really hard part to deal with, the difference between windstorm and hail and hurricane. Here’s where you make your money as a coverage analyst. Here’s what I mean. Take a look at the definition of hurricane (CP 03 23 Florida Calendar Year Hurricane Percentage Deductible).

Under the terms of this endorsement, a hurricane is a storm system that has been declared to be a hurricane by the National Hurricane Center of the National Weather Service (hereafter referred to as NHC). The Hurricane occurrence begins at the time a hurricane watch or hurricane warning is issued for any part of Florida by the NHC, and ends 72 hours after the termination of the last hurricane watch or hurricane warning issued for any part of Florida by the NHC.

The term hurricane is very specific, and it’s very narrow. This means that the hurricane deductible only applies when there is a hurricane and there’s only a hurricane when the NHC has issued watches or warnings about hurricanes. This is good for the insured because when the hurricane deductible doesn’t apply, the deductible for fire applies.

If you were to look at the endorsement that creates a windstorm or hail deductible, you find that there is no definition of windstorm or hail. Without a definition in the policy, we have to use a common definition, unless there’s another part of the policy that might define the term windstorm or hail. Spoiler alert, there is no definition of windstorm or hail in the policy.

According to dictionary.com, a windstorm is a storm with heavy wind but little or no precipitation.

According to Merriam-webster.com, a windstorm is a storm marked by high wind with little or no precipitation.

You get the point. Windstorm means any high winds that could damage property. Do you see how very broad the windstorm or hail deductible really is? It expands the cause of loss from hurricane, which has a very specific definition to windstorm or hail, which means that any time the wind blows hard enough to shake a branch, or any hail falls, the deductible applies, which will be the same percentage as the hurricane deductible.

Here’s the advice, check to see if there is a hurricane or windstorm or hail deductible on the policy and if there is, find some funding just in case the forecasters are correct and there are extra hurricanes this year. If the policy has a windstorm or hail deductible, negotiate with the insurer for a hurricane (or named storm, which is available in some states) deductible. The windstorm or hail deductible form is bad news for any insured that has a wind exposure.

Cost of evacuation

The question comes up every year. Is there coverage for the costs of evacuating an area when the governor orders an evacuation? The answer is very simple.

No, well most likely there isn’t. It’s possible that someone has a policy that has some coverage for the expenses related to evacuation, but I’ve never seen it and it’s not on any ISO-based policy that I know of. It’s just not an insurable expense because no damage has happened. Sure. If a hurricane comes by and takes the roof into the next county, there is coverage on a homeowners’ policy for the additional living expenses incurred because of the hurricane damage to the dwelling. There’s also coverage available for the lost business income if the insured’s store has a tree in the showroom and there’s business income coverage.

But there’s still no coverage for evacuation expenses.

There’s also coverage for damage to property that is removed because it’s in danger of being damaged by a hurricane. ISO commercial property policies have an additional coverage called Preservation of Property. This additional coverage provides the insured with protection for their personal property that they move because their building has been damaged or may be damaged by a covered cause of loss.

This isn’t more coverage, it’s a way to provide additional covered causes of loss to property that’s already covered if it happens to get damaged while the insured is trying to protect it from damage. If the insured loads their inventory of 80″ television into the back of their box truck to protect them from Hurricane George, there’s coverage for any damage to those televisions if, for example, the bridge the truck is on collapses into the river and the televisions are swept into the Gulf of Mexico.

But there’s still no coverage for evacuation expenses.

There’s more to cover, but that’ll be for another day. This is enough for all of us to ponder and meditate upon. Hurricane season is here. Let’s be ready.

Topics
Catastrophe
Natural Disasters
Hurricane