The heavy rainfall, high winds, and storm surges associated with hurricanes and other intense storms can devastate any business, even those located hundreds of miles off of a coast. Because these storms have the potential to cause tens of billions of dollars in damage, insurance providers generally use special “named storm deductibles” to provide coverage in the event of a loss. Named storm deductibles typically cost more than traditional fixed-dollar deductibles, but specific circumstances trigger them and vary based on location. However, the details of these deductibles are important to know so you're prepared in the event of a severe storm.
Named Storm Deductibles: An Overview
Storms trigger Named Storm Deductibles: The National Weather Service (NWS) will name a tropical depression, tropical storm, or hurricane if it's severe enough.
The NWS first started to name storms to make it easier for the public to track and follow severe storms as they developed. However, after large hurricanes and tropical storms began to cause large amounts of damage, insurance providers began looking for ways to mitigate their losses. Named storm deductibles, tied to the time periods surrounding NWS-named storms, ensure insurance providers are responsible for a smaller portion of any loss caused by a named storm.
It’s important to note other organizations have started to name storms. The Weather Channel, a privately owned weather organization, recently began naming winter storms in order to make tracking them easier for its viewers. However, insurance providers only apply named storm deductibles to storms named by the NWS.
The Triggers for Named Storm Deductibles
The triggers for named storm deductibles can vary based on the insurance provider and location, although almost all triggers generally include a timing window, such as 24 hours before a storm's named by the NWS to 48 hours after it's downgraded to a tropical storm. During this window, your named storm deductible will apply to any damage instead of a normal wind and hail deductible.
Other triggers can include when a hurricane makes landfall or when a hurricane watch's declared. Because the triggers for named storm deductibles can vary significantly, it’s important to look up the exact rules as defined by the state you live in and your specific insurance policy.
Named storm deductibles generally cost more than regular deductibles because they're based on percentage rather than a fixed dollar amount. Most named storm deductibles range between 1-to-5 percent of your total insured amount, but in high-risk areas, deductibles can reach as high as 10 percent.
For example, imagine that you insured your business for $1.5 million. If normal wind or hail damage your business, you would pay a regular, fixed-dollar deductible before your insurance provider would provide coverage for the remaining damage. However, if during the window of a named storm deductible, the storm caused damage, your deductible would use a percentage to calculate the cost. For a five percent deductible, this would amount to an out-of-pocket expense of $75,000 before your insurance provider would pay for damages.
What It Means for You
Deductibles for damage caused by named storms are higher in order to mitigate the financial risk to insurance providers while still offering premiums that are relatively low. Additionally, many insurance providers believe that the high deductibles will encourage business owners to take proactive steps to protect their businesses from severe storms.
Let’s Have a Conversation
Have questions about named storm deductibles or other commercial insurance matters? Contact a Plexus P&C client executive at 847-307-6100. We're here to help, and we're happy to help.
Disclaimer and publishing credit: This Coverage Insights not intended to exhaustive nor should any discussion or opinions construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. © 2016 Zywave, Inc. All rights reserved.