Coverage Needs Increase as Wind Season Picks Up

Wind season began June 1 and
continues through December. The current wind insurance market continues to harden, especially for properties located in coastal areas.

Pricing has increased (sometimes as much as 300%) and there are fewer insurers willing to write wind coverage (resulting in reduced capacity). It is difficult to obtain limits that cover the entire value of larger property schedules.

Purchasing wind insurance can be a challenge. One of the most confusing issues is the wind deductible. There are many types of wind deductibles, including:

• Wind/hail deductible – applied to a loss caused by wind or hail;
• Hurricane deductible – specific to loss caused by hurricanes;
• Named storm deductible – specific to loss caused by hurricanes or named tropical windstorms; and
• High windstorm deductible – specific to loss caused by wind in excess of certain speed but not limited to hurricane.

There are also many ways in which wind deductibles are applied. The easiest to understand is the flat deductible, however, this is also the most uncommon. A flat deductible would simply be deducted from the amount of the loss.

The most common wind deductible is a percentage deductible. It is often assumed that the deductible percentage is applied to the value of the loss. This is not the case. Rather, the percentage is applied to the value of each location or each building.

In addition, a minimum deductible can be applied to a wind policy. This is the minimum amount the insured will pay for any loss. For example, if a policy had a minimum deductible of $100,000 and a wind deductible of 5%, a $1 million building suffering a total loss would calculate its 5% deductible at $50,000. However, the insured would be required to pay the minimum deductible of $100,000.

Wind insurance does not cover water damage unless it enters a building through an opening caused by the wind (such as a broken window or damage to the roof). Wind policies exclude water damage from flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether driven by wind or not. Flood insurance is needed to cover water damage.

Contact Agency Operations at 800-873-0242, ext. 639 for more information about wind insurance.

Items to consider when purchasing wind insurance

How is wind coverage defined in my policy?
A wind policy can include coverage for variety of wind events. It may include wind gusts, tornados, tropical storms, cyclones, hurricanes or hail. It is important to understand the specific wind events your policy covers, as a variety of polices are available. A policy may provide broad wind and hail coverage, or it may only cover storms named by the National Weather Service (called named storm coverage), or it may only cover hurricanes of a certain category or wind speed.

Is your percentage deductible per building or per location?
Deductibles per building are preferable over deductible per location.
Consider a property containing four buildings, each valued at $250,000. The total value of the location is $1 million. Using a 5% deductible on a per-building basis the insured’s deductible would be $12,500. On a per-location basis, the insured would not be paid for losses until they exceed $50,000.

Is there a time period after which the deductible is reinstated?
After a specified time period (generally 72 hours), if another wind event occurs the insured can be required to pay the deductible again under certain policies.

Does my deductible apply separately to buildings, contents, and loss of income?
It is important to determine if you will pay your deductible once, or multiple times for each different exposure.

Has wind deductible been considered in project-based budgeting?
For large properties, a wind deductible can be a significant expense. A high-rise building can easily have a replacement value of $20 million. With a 5% per building deductible, this would amount to a $1 million deductible. Imagine allocating that deductible expense to the location under project-based accounting. It is possible to buy down deductibles for specific buildings or locations to a lower deductible level. Speak with your insurance professional about available options.

For more information on our Hurricane Center, click here. For more information on Flood Insurance, click here.