BILL NUMBER: S4199

SPONSOR: SANDERS
 
TITLE OF BILL:

An act to amend the insurance law, in relation to homeowners insurance
deductibles triggers

 
PURPOSE:

The purpose of this bill is to help promote better understanding of the
applicability and amount of hurricane windstorm deductibles in homeown-
ers and dwelling fire policies and to establish reasonable standards for
the operation of hurricane windstorm deductibles.

 
SUMMARY OF PROVISIONS:

Section 1. This section makes amendments to section 3455 of the insur-
ance law to require the Superintendent of the Department of Financial
Services to promulgate, within 180 days of the effective date of this
bill, regulations providing standards for hurricane windstorm deduct-
ibles which create, to the greatest extent possible, uniformity in the
              

operation of such deductibles with respect to the triggering event.

Section 2. This section sets forth the effective date.

 
EXISTING LAW:

Section 3455 of the insurance law requires the superintendent to estab-
lish 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 under-
stand the terms of the catastrophic windstorm deductible in their home-
owners and dwelling fire policies. In particular, consumers need to
understand the increased exposure they are assuming.  Currently, insur-
ers 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
6W deductible on a $500,000 would result in the policy-holder having to
pay the first $30,000 of damages sustained to the home during a wind-
storm.

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 easi-
ly 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 'trigger-
ing' events. Since the triggering event will determine whether a wind-
storm deductible applies to a policyholder's 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 wind-
storm 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:

2022 REFERRED TO SENATE INSURANCE 2022 passed assembly

2021 REFERRED TO SENATE INSURANCE 2021 assembly third reading

 
FISCAL IMPLICATIONS:

None to the State.

 
EFFECTIVE DATE:
Ninetieth day after it shall have become law, and shall apply to all
polices issued or renewed on or after the one hundred eightieth day
after the adoption of the required regulations.