Season's Storms Prompt
Insurance Adjustments

Many policyholders were caught flat-footed by large, and recurring, windstorm deductibles during the recent spate of Florida hurricanes. Now some insurance companies, including Fireman's Fund, are waiving the multiple deductibles for claims from the storms -- good news to homeowners in other states.

Fireman's Fund Insurance Co., a unit of Allianz AG, and Safeco Corp. are waiving their multiple-deductible rule for claims from the four storms that hit Florida during August and September. State Farm Mutual Automobile Insurance Co., the largest home insurer in Florida and nationwide, is applying the multiple deductibles in cases only where it can differentiate damage from two different storms.

In addition, Florida's chief financial officer plans to ask the state's legislature -- which will address the issue next month in a special session -- to force insurers to charge no more than one windstorm deductible per season, as opposed to the double deductibles many Florida homeowners are facing in the wake of this season's storms.

For homeowners in other hurricane-prone states, Florida's actions may be good news. "Regulators haven't thought about this before," says Robert Hunter, director of insurance for the Consumer Federation of America. "If there's another season with two storms, they're more likely to follow Florida's lead" and limit the number of deductibles policyholders are required to pay.

Windstorm deductibles, which homeowners pay in the event that a named storm -- typically a hurricane -- causes damage to their home, became prevalent in the mid-1990s, after Hurricane Andrew slammed into southern Florida in 1992 and caused $15.5 billion in insured damage. While a normal homeowner deductible typically is expressed in dollar terms, with homeowners picking up $500 or $1,000 before the insurer starts paying a claim, the new windstorm deductibles are expressed as a percentage of a policy's total value, typically 2% or 5%. On a $250,000 home with a 5% deductible, the homeowner pays a deductible of as much as $12,500 in damage before an insurer pays.

What many policyholders in Florida didn't understand was that each time their home is damaged by a hurricane, a new deductible applies. Because the storms that struck in September hit many of the same areas, thousands of homeowners were stuck paying more than one deductible. The Florida Department of Financial Services, which oversees insurance regulation in the state, received more than 1,000 complaints about insurers charging more than one deductible.

The insurers aren't waiving the deductibles out of the goodness of their hearts. John Kozero, spokesman for Fireman's Fund, said doing so simplified the claims process for its own claims adjustors. "When they go into a site that has been hit several times, it's hard to know which storm caused which problem," he says, adding that the company didn't want to put its customers in the awkward ethical position of being asked whether their homes were damaged by one storm or two. Mr. Kozero says Fireman's Fund had between 100 and 150 policyholders who reported damage from more than one storm.

The deductibles aren't unique to Florida. Insurers include them on policies in coastal areas as far north as Maine, and Fireman's Fund recently added windstorm deductibles to its policies for coastal Long Island. In all, 17 states -- along the East Coast and Gulf Coast, and Hawaii -- allow insurers to apply windstorm deductibles to policies, typically in coastal areas.

It isn't likely that those states will take a hard look at windstorm deductibles simply because of what is occurring in Florida. "Unless the states themselves have a multiple-storm event, they're not likely to tinker with the status quo," says Robert Hartwig, chief economist for the Insurance Information Institute.

But Mr. Hartwig says that whatever changes occur in Florida or elsewhere, insurers may need to change the rates they charge. "If you're going to move to a single windstorm deductible or give people the option of a fixed deductible, the rate being charged needs to reflect the greater assumption of loss by the insurer," he says.

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