Insurance Excesses – We’ve all been watching closely as Hurricane Sandy hit the US East Coast in the last week, causing loss of life and tremendous devastation. There may however be some slight relief for the thousands of property owners hit as the Hurricane was in fact downgraded to a “Post-Tropical Cyclone” before hitting the coast.
Why does this matter?
The fact that the Hurricane was downgraded means that homeowners may not have to pay out the same excesses (or deductibles) on their property insurance as would be charged if Sandy was classed as a Hurricane at that point. New York’s Governor Andrew Cuomo said “Homeowners should not have to pay hurricane deductibles for damage caused by the storm and insurers should understand the Department of Financial Services will be monitoring how claims are handled,”
How does it work?
Hurricane excesses are different from standard home insurance excesses as they are far higher, sometimes up to 5% of the property value. The legal term ‘hurricane’ is only applied if wind speeds reach a certain level, something which is written into the contracts which are a private agreement between the insurance company and the policy holder.
What action is being taken?
The fact that the hurricane has been downgraded will go against the interests of the insurance companies, who have a lot of lobbying powers. A spokesman from State Farm Insurance has however said: “We have done a review of the best available National Weather Service data and compared that to our language, and we have determined that the hurricane deductible will not apply in those states,”
How much such a difference in excesses will cost to insurance companies is still unclear. The damage caused by Hurricane Sandy still needs to be assessed and it could be some months before a clearer picture emerges. This should provide some respite for those individuals and businesses who have been affected.