BILL NUMBER:S2032

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 3445 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 5500,000 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., 5250, 5500, $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: 2011-12 S.3387A; 2008 S.6042

FISCAL IMPLICATIONS: None to the State.

EFFECTIVE DATE:  This act shall take effect on the ninetieth day after
it shall have become a law, and shall apply to all policies issued or
renewed on or after the one hundred eightieth day after the adoption
of the regulations required in section 3455 of the insurance law, as
amended by this act.