BILL NUMBER:S3387

TITLE OF BILL:
An act
to amend the insurance law, in relation to homeowners
insurance deductibles triggers

PURPOSE:
To help promote better understanding of the applicability and amount
of hurricane windstorm deductibles in homeowners and dwelling fire
policies, To establish reasonable standards for the operation of
hurricane windstorm deductibles.

SUMMARY OF PROVISIONS:
This legislation amends section 3455 of the insurance law to require
insurers that issue homeowners' and dwelling fire policies with
catastrophic windstorm deductibles to provide notice to their
policyholders, upon policy issuance and renewal, which clearly
explains the amount and the applicability of the deductible, and to
send separate notice prior to hurricane season, in accordance with
standards established by the superintendent in regulation. The bill
would require the superintendent to establish reasonable standards
for uniformity in the triggering and operation of hurricane windstorm
deductibles to promote clear understanding and a reasonable and
actuarially appropriate apportionment of hurricane risk between
insurers and policy holders,
              

EXISTING LAW:
Section 3453 of the insurance law requires the superintendent to
establish disclosure requirements in regulation with respect to the
operation of windstorm deductibles in homeowners' and dwelling fire
policies. The regulation sets standards for such notice on the
declarations page and in a separate notice accompanying all new and
renewed policies.

JUSTIFICATION:
Legislation is required to ensure that insurance consumers fully
understand the terms of the catastrophic windstorm deductible in
their homeowners and dwelling fire policies. In particular, consumers
need to understand the increased exposure they are assuming.

Currently, insurers are utilizing a wide variety of windstorm
deductible programs in their homeowners and swelling fire policies.
Windstorm deductibles, which can range from 1% to 7.5%, are usually
expressed as a percentage of the homeowners' Coverage A limit (the
value of dwelling structure). A 6% deductible on a $500,000 would
result in the policyholder having to pay the first $30,000 of damages
sustained to the home during a windstorm.

While windstorm deductibles are expressed as a percentage, most policy
holders are used to relatively low deductibles expressed as a dollar
amount (i.e., $250, $500, $1,000). Percentage deductibles are
generally found in health insurance programs, where policy holders
are required to pay a percentage of a medical claim. Therefore,
policy holders can easily misconstrue a 6% windstorm deductible as
requiring them to pay only 6% of the damages sustained, rather than


up to 6% of the value of their home. Additionally, while the
deductible is often described in terms of a percentage of the
Coverage A limit, it typically applies not only to the losses to the
dwelling structure, but also to additional structures on the premises
(Coverage B) and to the contents of the home (Coverage C).

Requiring insurers to issue a notice to policyholders which explains
in plain language the amount and circumstances in which the
deductible applies will help policyholders better understand these
various and complicated deductible provisions. Also, consumer
confusion regarding the amount and applicability of their percentage
deductibles will be further reduced by requiring the deductible to be
expressed, on the policy and declarations page, as a dollar amount of
each coverage part to which it applies.

Another area of confusion for consumers is understanding the event
which activates or "triggers" the applicability of their windstorm
deductible. Currently, insurers' deductible programs contain a
variety of 'triggering' events. Since the triggering event will
determine whether a windstorm deductible applies to a policy holders
loss, it is crucial that it be fair and reasonable to both the
policyholder and the insurer.

Uniform standards for and notice explaining the operation of
catastrophic windstorm deductibles are necessary to promote easier
comparison between different insurers' options, and to ensure clear
understanding of the extent of policyholder exposure under these
options. The requirements for understandable and fair standards will
ensure that catastrophic windstorm deductibles are reasonable,
actuarially appropriate and applied in the proper circumstances.

LEGISLATIVE HISTORY:
2008: S.6042

FISCAL IMPLICATIONS:
None to the State.

EFFECTIVE DATE:
This act shall take effect on the 90th day after it shall have
become law and shall apply to all polices issued or renewed
on or after the ninetieth day of promulgation of the
required regulations.