Hurricanes and Windstorm Coverage



...reconstruction and mitigation became increasingly difficult when the resources of insurance companies, contractors, roofers, suppliers, and the government were spread thin.

Since hurricanes are largely unpredictable, policyholders along the coasts must always ready themselves for the possibility of future damaging storms. In the aftermath of a hurricane, many priorities come to mind, but primarily protecting your property, getting your business back up, and recovery in general are paramount. Just like boarding your windows before the hurricane, understanding your insurance policy long before a disaster strikes is essential to protecting your insurable interest and ensuring a fast recovery. Having contingency plans established in advance will help you weather the storm.

The case studies included in this issue provide examples of potential exposure insureds may discover. If any of this information raises a red flag in relation to your coverage or risk, call your insurance broker or consultant to determine how you can better insure your financial interests.

Windstorm Property Deductible

Is it 2, 3, or 5 percent of my policy limit? When hurricanes make landfall and wind causes the initial structural damage to a property, such as blowing off the roof or knocking out windows, the cause of loss is classified as windstorm. Windstorm damage often opens the door for massive amounts of water and debris to cause further damage to a structure. Unlike other causes of loss, such as pipe breaks or fires, which have a preset, fixed deductible, the deductible for a windstorm loss amounts to a percentage of the overall policy limit. Even though these percentages may seem small — either 2, 3 or 5 percent — these percentage deductibles can add up quickly and put a serious strain on your financial recovery.

One way to mitigate such issues is for property owners to purchase a buy-back deductible. This is supplemental coverage that allows policyholders to forfeit paying a deductible by opting to pay an additional premium.

Case Study:

In 2001 the owners association of a Florida condominium complex comprising 20 buildings and 200 units purchased an insurance policy with a $20 million limit. To save money on the premium, they opted for a 5 percent windstorm deductible, and every year since, they had renewed the same policy.

In 2004 the condominium complex was directly hit by Hurricane Charley, and every building suffered major damage to the roofs and interiors of the individual units. With such excessive damages, the condominium board realized that with their overall deductible set at 5 percent of the policy limit, the first $1 million for mandatory repairs was expected to come from the coffers of the association. Saving a few thousand dollars in premiums over the past four years had resulted in more than a half million dollars in deductible costs.

The condominium board was then faced with the difficult task of assessing each unit owner for their share of the deductible.