If you live in a part ofthe country that is particularly susceptible to wind/hail/tornado storms than you have seen one of two things happen (or both) to your wash’s building/property insurance. Rates have increased significantly for buildings in high-risk areas and/or many carriers are adding separate wind/hail deductibles to policies. It’s important to first understand why this is happening.
Insurance carriers rely on data to develop risk profiles for geographic areas and, ultimately, that determines premium rates. Hail alone accounts for over $1 billion in damage to property and inventory each year. There were 5,411 major hailstorms in 2015, with the vast majority of storms occurring in April, May, and June. The states with the most damage in 2015 were Texas, Kansas, Nebraska, Oklahoma, and South Dakota. Also it’s important to realize that from 2000 to 2015 more than $57 billion in hail losses alone occurred and most of those losses — 70 percent — occurred during the past six years. This article has no intent on entering into the politically charged climate-change debate. Rather it is to be noted, for insurance purposes, that the claims payout for these storms has increased dramatically in recent years. This could partly be attributed to the increasing value of buildings and properties. However, it is also attributable to the fact that these storms have become more frequent and severe in recent years.
There is no doubt that if you own a wash in a state where hail/wind storms are a regular occurrence you either already have or soon will see your insurance carrier taking action to mitigate the level of exposure to storm related property claims. This is primarily being accomplished through the addition of separate property deductibles for wind/hail events. These “special” deductibles are added to existing policies through the endorsement of the policy.
The endorsement number/name will be listed on your policy and a copy should be included when your policy is issued.
The wind/hail deductible comes in one of two forms: a flat stated dollar amount or a percentage deductible.
If you have a “flat dollar deductible” it will be listed in the wind/hail endorsement as a dollar amount, generally from $500 to $5,000. Should your property suffer damage from a wind/hail related event the amount listed as your wind/hail deductible would be subtracted from the paid claim amount. Let’s assume that your wash has roof damage from a hailstorm that results in a covered claim for $18,000. Your wind/hail deductible is listed as $1,500. In this case the amount of the claim paid would be $16,500.
The trend, since hurricane Katrina struck, has been the usage of percentage deductibles. Instead of a dollar amount listed as the wind/hail deductible a percentage is listed. Generally ranging from 1 percent to 15 percent. Percentage deductibles are calculated very differently from flat deductibles. The percentage deductible is based upon your wash’s insured building value. Let’s assume your building is insured for $750,000 and you suffer the same roof damage as the above example. Your wind/hail deductible is listed as 3 percent.
In this case you would not receive any assistance from your policy with this claim. $750,000 x 3% = $22,500. Since this amount exceeds the amount of the claim — $18,000 — there would be no payout from your policy.
It is critical that if you own a wash in a storm susceptible area, which seems to be encompassing more and more of the country lately, that you take the time to review your property policy closely. If your policy contains an endorsement for wind/hail deductibles take these three steps to manage that deductible.
1. Read your policy — make certain that you fully understand the deductible placed on your policy.
2. Talk to your agent — make sure your agent fully explains all of the requirements and nuances of your policy. Ask if there are deductible alternatives available.
3. Be prepared — catastrophes happen. No matter where you live in the United States, you’re just a couple of years away from some major catastrophic event. If your policy requires a wind/hail deductible, make sure you have the money saved up so you’ll be able to pay it when that disaster actually occurs.
Dan Tharp, CIC, RWCS, is licensed in all states (except Alaska & Hawaii) and is the vice president of sales for The Insurancenter. Dan has been assisting business owners protect their operations, assets, customers, and employees for over 25 years. Dan can be reached at DTharp@theinsurancenter.com or by calling (800) 444-8675.