High hurricane and windstorm deductibles in South Florida are challenging for many property owners and managers. Deductibles for water damage have also been increasing recently, making it harder to manage common water issues associated with owning multiple units, commercial spaces and multi-family homes in South Florida. Property owners and managers can benefit from learning how to balance the hurricane, windstorm and water damage deductibles with their premiums and the restoration services needed in the event of an emergency.
Higher Deductibles from Hurricanes
In 1992, Hurricane Andrew cost insurance companies approximately $15.5 billion, the most expensive storm in United States history behind Hurricane Katrina. After nearly a dozen folded due to Hurricane Andrew, insurance companies claimed they could no longer stay in business without adjusting some property deductibles.
When South Florida was hit with a series of hurricanes during 2005, windstorm deductibles began to increase substantially as well. As a result, windstorm deductibles are now calculated as a percentage of the insurable value of the property. While a general liability deductible may only cost up to $5,000 in Florida, a windstorm deductible for South Florida property owners could cost over $30,000 out of pocket.
Higher Deductibles in South Florida
In response to the challenges Hurricane Andrew caused insurers in the past, insurance companies gained state approval in 2004 to reduce their hurricane coverage and shift most of the initial costs for reconstruction and repairs to the property owners who actually suffer the damage. The barrage of hurricanes during this period compelled the state legislature to hold sessions evaluating higher property deductibles and other related issues. Instead of applying flat deductibles across the entire nation, hurricane warnings now cause South Florida and Atlantic Seaboard communities’ deductibles to increase.
Percentage Deductibles for South Florida Properties
State law permits insurance companies to give properties with more value a higher deductible. So property valued over $100,000 may have to pay a 2-percent deductible while property worth over $250,000 may be assessed a 5-percent deductible. In addition, properties can be assessed another deductible for each subsequent hurricane that occurred. The hurricane deductible could cost property owners up to 5 percent of their property value.
Anticipating High Deductibles in South Florida
South Florida has the highest hurricane incident rate of anywhere else in the country. Hurricane deductibles are activated when insurers’ predetermined triggers occur, such as a hurricane advisory or if the storm reaches a certain category level. Even if a hurricane has not been declared, the windstorm deductible may still apply. The percentage-based deductibles property owners have in South Florida are largely due to Hurricane Andrew and the series of storms in 2005.
During 2016, over a dozen home insurance companies increased premium rates. Since the rate increase, Florida property owners have been looking for new strategies to reduce their premiums. Ultimately, the most effective way to provide policyholders with insurance lower rates is to raise the deductible. However, if you live in South Florida and you trade a lower premium for a higher deductible, you may be faced with insurmountable out-of-pocket expenses when water damage occurs or a hurricane does touch down again.