States block insurers from charging big hurricane deductibles

Storm flooding

Here's potentially good news for homeowners affected by Hurricane Sandy: You may not face higher hurricane deductibles after all.

New York Gov. Mario Cuomo announced today that hurricane deductibles were not triggered because Sandy did not have sustained hurricane-force winds when it hit land.

To be officially classified as a Category 1 hurricane on the Saffir-Simpson scale, the storm must have sustained winds of 74 miles per hour.

By the time Sandy hit New Jersey, the National Weather Service labeled it a "post-tropical cyclone." That designation is for storms with winds no higher than 73 miles per hour.

Governors and state insurance officials in New Jersey, Maryland and Connecticut confirmed that hurricane deductibles will not apply.

Each state and insurance companies have their own triggers — the precise point at which a hurricane deductible kicks in.

The difference can mean thousands of dollars for a homeowner with storm damage.

Hurricane deductibles are based on a percentage of a home's insured value.

A homeowner with a $300,000 home and a 5% hurricane deductible could be on the hook for $15,000 with a hurricane.

If the trigger is not met and regular deductible apply, that homeowner would only need to pay the first $500 to $1,500 worth of damages.

It brings to light the complexities and technicalities of homeowners insurance when it comes to hurricanes.

The insurance industry started implementing higher hurricane deductibles following massive losses from Hurricane Andrew in 1992.

If homeowners don't share a larger burden of risk, insurers say premiums would be even higher in hurricane-prone areas.

But it's a very fine line that can be as little as a difference of 1 mile per hour in wind speed.

Even though Sandy was officially declared a "post-tropical storm," it still displayed characteristics of a hurricane.

According to the Consumer Federation of America, up to 100,000 policyholders who suffered wind damage would have fallen under the hurricane deductible ruling.

It's possible that some insurance companies will challenge the states in court and demand to be able to impose hurricane deductibles on their customers.

The fine line of the designation has been challenged in court by consumers and insurance companies on the Gulf Coast.

You can be assured that insurance companies are carefully reviewing the technicalities with teams of lawyers.

Insurers are going to do what they can to minimize the amount of money they have to pay out.

So, while it's looking like Sandy's victims won't be hit with an insurance deductible, that's still not 100% certain.

You should reconfirm with your insurance company to find out exactly how they see the situation and what your deductible will be.

If you are pressed to pay a hurricane deductible, the Consumer Federation recommends that you contact your state insurance commission in writing.

It is estimated that the storm could cost insurance companies $7 billion to $15 billion in insured losses. This could make it the sixth-most-expensive storm in history.

Without hurricane deductibles, those losses could be even higher. And when insurers suffer big losses, they often try to recoup that money by raising insurance premiums.

Homeowners on the Gulf Coast from Florida to Texas have seen this every time a big storm hits their area.

So, while you may only have to pay $1,000 deductible now, you should brace yourself for a large insurance hike when your policy comes up for renewal.

These hikes could likely impact every homeowner in the region, regardless of whether or not you filed a claim.

Whether Sandy was a hurricane or not will not have any impact on homes that were flooded, because flood damage is covered by a separate flood insurance policy.

Those policies have no storm triggers and view a flood as a flood, regardless of storm classification.