Explaining Deductibles After Multiple Florida Hurricanes

Deductibles serve several purposes. They provide some premium relief for the insured. They make insureds less likely to file smaller claims because either damage falls within the deductible, or is so close to it that the policyholder would rather not file the claim. Sometimes, deductibles help to motivate an insured to change behavior.

This hurricane season, the concept of a deductible will be top of mind for Florida insureds because three hurricanes have made landfall in Florida this season and the Tampa Bay area has suffered two direct strikes. This means some people could have to deal with the prospect of multiple hurricane deductibles if their house or building was damaged twice.

Since 2006, Florida law requires insurers of residential buildings to use a calendar year hurricane deductible. The change was made following the 2004 and 2005 hurricane seasons when eight storms made landfall in the Sunshine State. Imagine your home was damaged by more than one storm. It would be hard enough trying to attribute damage to each storm, but multiple claims mean more than one deductible to pay. This was a nightmare situation for Florida homeowners, and they made sure the legislature did something about it.

A Look at the Past

Before 2006, the available ISO hurricane deductible endorsement for an HO-3 was HO 03 51 07 01 – Hurricane Percentage Deductible – Florida. Here’s how it worked. The first paragraph provided coverage for damage to the inside of a building if the outside is damaged due to the windstorm, and anything from outside – like rain – came inside.

The second paragraph defined a hurricane as any storm the National Hurricane Center called a hurricane—from the first hurricane watch or warning in Florida until 72 hours after the last watch or warning expired.

But let’s look at how the hurricane deductible applied.

Hurricane Deductible

The hurricane deductible is not a specific dollar amount, and it changes whenever the Coverage A limit changes, but let’s use a house with a $250,000 Coverage A limit with a 2% hurricane deductible. Hurricane A came through the state and damaged the house. Here’s how we calculate the hurricane deductible.

$250,000 x 2% (0.02) = $5,000

That tells us the hurricane must do at least $5,000 in damage to the house before any payment is due. That’s significantly more than a standard $500 deductible for fire.

Now a second hurricane, Hurricane B, comes through and the home is damaged again. That’s right. The same $5,000 deductible would apply to the second loss as well. If this was 2004, instead of 2024, the insured would have two hurricane claims with a total deductible of $10,000.

The Present

Since it is 2024, the calendar year deductible applies. ISO updated HO 05 31 and renamed it Calendar Year Hurricane Deductible (Percentage) With Supplemental Reporting Requirement – Florida. This revised endorsement (and several others that work slightly differently but are all calendar year deductibles) made it possible that the hurricane deductible would no longer apply per occurrence. It applies once in a calendar year.

Let’s see how it works, keeping in mind the whole endorsement is not reproduced here. Read it yourself for all of the details.

Calendar Year Hurricane Deductible Described

A hurricane deductible issued by us or another insurer in our insurer group:

The dollar amount of the calendar year hurricane deductible is determined by multiplying the Coverage A Limit Of Liability shown in the Declarations by the percentage amount shown in the Schedule above. A minimum deductible of $500 applies.

This paragraph explains how the hurricane deductible is calculated and it’s calculated the same way as it was under the other edition of this endorsement, with one key phrase that did not exist before: “A hurricane deductible… (c)an be exhausted only once during each calendar year,…” The hurricane deductible only applies once.

How is that possible? Let’s take a look at some more policy wording.

Application Of Calendar Year Hurricane Deductible

A distinction must be made between a calendar year, which is likely different than the policy year. A single deductible during the policy year would mean that if the policy expired during hurricane season, the hurricane deductible could reset, causing the policyholder to have multiple hurricane deductibles again, making this endorsement less effective in helping a homeowner.

When the first hurricane comes, the policy promises to pay only the amounts above the hurricane deductible. Keeping the same example as above, a 2% deductible is $5,000. But it is possible that a $3,000 loss happened that did not exceed the deductible. This is important to note.

Let’s work with the $3,000 loss that was below the hurricane deductible. Why does it matter? Let’s look at the next sentence in the endorsement.

Here’s the reason to report a small claim that did not exceed the deductible. If the company knows about the prior loss, and knows that it was less than the deductible, it reduces the hurricane deductible by the amount of that prior loss. So if the same home suffers a $10,000 loss in hurricane number two, the deductible looks like this:

2% of $250,000 is $5,000

$5,000 – $3,000 = $2,000

$10,000 – $2,000 = $8,000

This does not make the trauma and uncertainty of being impacted by multiple hurricanes go away, but it does help people who are looking around and wondering how they are going to deal with hurricane deductibles make more sense of that part of the equation. Maybe it makes rebuilding a little easier, and getting back to normal a little quicker.