Insurance companies soon may not be permitted to apply a special deductible for wind damage unless a hurricane actually makes landfall in New York. This is one of a number of consumer protection measures in proposed new regulations announced today by New York State Insurance Superintendent James Wrynn. The regulations are part of a comprehensive plan by the Department to help ensure the availability and affordability of homeowners insurance in coastal areas, Wrynn said.
The weather experts keep telling us that it's not a question of if a hurricane will strike the New York City metro area, it's a question of when. The forecasters and the insurance companies have been waiting for the big one to pummel Long Island ever since Hurricane Andrew in 1992. The effect on the homeowners insurance market there has been dramatic. Depending on your proximity to the Atlantic Ocean in those areas and the replacement cost of your home, you may be unable to get coverage in the admitted market. Wherever you get coverage, you will buy a very high windstorm deductible and pay a large premium. Insurers properly argue that they must underwrite and price in accordance with the risk, and the risk is high. In addition, reinsurers often force primary insurers to take these measures as a condition of assuming part of the risk. These arguments, however, are small comfort to homeowners in those areas.
Now comes the news that the New York Insurance Department has prepared regulations to address the market situation there. The biggest change in the proposal would create separate wind deductibles -- one for hurricanes and the other for all other types of wind-related losses. The hurricane deductible would retain the characteristics that we've come to associate with the old windstorm deductibles, expressed as a percentage of the limit of insurance covering the home and ranging from one percent to five. The new windstorm deductible (the one applicable to non-hurricane losses) will apply in the same way as the deductible that applies to other covered perils (fire, explosion, etc.) The hurricane deductible will apply only when the National Weather Service has determined that a Category One or higher hurricane has made landfall in New York State. It will apply to direct damage losses occurring during the window starting 12 hours before the hurricane makes landfall in New York and ending 12 hours after the National Weather Service cancels the last hurricane watch or warning it issued for that storm in New York.
The department is proposing other changes that I'll discuss in future blog posts. This news has to come as something of a relief to agents and brokers in the coastal areas, particular eastern Suffolk County. However, I'm interested in your reactions. What do you think about the department's proposal. Is it enough? Is it too little, too late? How will the companies react? Leave your thoughts in the comments.