Makes provisions with respect to notices of homeowners deductibles triggers for hurricane windstorms

Existing law

Section 3455 of the insurance law requires the superintendent to establish disclosure requirements in regulation with respect to the operation of windstorm deductibles in homeowners' and dwelling fire policies. The regulation sets standards for such notice on the declarations page and in a separate notice accompanying all new and renewed policies.

Justification

Legislation is required to ensure that insurance consumers fully understand the terms of the catastrophic windstorm deductible in their homeowners and dwelling fire policies. In particular, consumers need to understand the increased exposure they are assuming.

Currently, insurers are utilizing a wide variety of windstorm deductible programs in their homeowners and swelling fire policies. Windstorm deductibles, which can range from 1% to 7.5% , are usually expressed as a percentage of the homeowners' Coverage A limit (the value of dwelling structure). A 6% deductible on a $500,000 would result in the policyholder having to pay the first $30,000 of damages sustained to the home during a windstorm.

While windstorm deductibles are expressed as a percentage, most policy holders are used to relatively low deductibles expressed as a dollar amount (i.e., $250, $500, $1,000). Percentage deductibles are generally found in health insurance programs, where policy holders are required to pay a percentage of a medical claim. Therefore, policy holders can easily misconstrue a 6% windstorm deductible as requiring them to pay only 6% of the damages sustained, rather than up to 6% of the value of their home. Additionally, while the deductible is often described in terms of a percentage of the Coverage A limit, it typically applies not only to the losses to the dwelling structure, but also to additional structures on the premises (Coverage B) and to the contents of the home (Coverage C).

Requiring insurers to issue a notice to policyholders which explains in plain language the amount and circumstances in which the deductible applies will help policyholders better understand these various and complicated deductible provisions. Also, consumer confusion regarding the amount and applicability of their percentage deductibles will be further reduced by requiring the deductible to be expressed, on the policy and declarations page, as a dollar amount of each coverage part to which it applies.

Another area of confusion for consumers is understanding the event which activates or "triggers" the applicability of their windstorm deductible. Currently, insurers' deductible programs contain a variety of 'triggering' events. Since the triggering event will determine whether a windstorm deductible applies to a policy holders loss, it is crucial that it be fair and reasonable to both the policyholder and the insurer.

Uniform standards for and notice explaining the operation of catastrophic windstorm deductibles are necessary to promote easier comparison between different insurers' options, and to ensure clear understanding of the extent of policyholder exposure under these options. The requirements for understandable and fair standards will ensure that catastrophic windstorm deductibles are reasonable, actuarially appropriate and applied in the proper circumstances.

Legislative history

2013-14 S.2032/A.2729; 2011-12 S.3387A; 2008 S.6042

Fiscal implications

None to the State.

Effective date

90 days after enactment and shall apply to all polices issued or renewed on or after the ninetieth day of promulgation of the required regulations.