Insurers operating in coastal states potentially subject to Atlantic storms use hurricane deductibles (as well as named-storm deductibles and windstorm deductibles) in recognition of the extent of their exposure to catastrophic losses. Such deductibles are based on a percentage of a home’s insured value rather than a flat dollar amount.
By limiting exposure to catastrophic losses, hurricane deductibles allow insurers greater flexibility, and at times, make it possible to offer coverage in hurricane prone areas to protect policyholders from extreme weather events as well as more ordinary claims. Hurricane deductibles, like any other provision in an insurance contract, are subject to regulatory approval, and several states have enacted laws and/or regulations addressing insurers’ use of such deductibles. Typical provisions of such measures include notice requirements and limitations on what circumstances can trigger the application of deductibles.
Hurricane deductibles have at times come under attack politically, and some lawmakers have sought to limit their use and effectiveness for political gain.
Insurers’ use of hurricane and other percentage deductibles should not be subject to undue legislative or regulatory restrictions. The applicability of hurricane deductibles should be determined solely by the contractual language of the policy rather than as the result of political pressures following a potentially triggering event. While some aspects of hurricane deductibles may be addressed through law or regulation, those should reflect the fact that hurricane damage can impact broad areas, even without actually making landfall. While overly restrictive regulation of hurricane deductibles may appear to be a political solution, the practical effect would be to reduce the availability and affordability of property/casualty insurance in disaster prone areas.