by: Elaine Gascon, Atlas Insurance Agency
Common Misconceptions About Hurricane Insurance and the Real Threat
As soon as a hurricane alert hits the news, insurance agents are often hit with waves of the same question – Do I have hurricane insurance? In 2018, the State of Hawaii experienced some close calls. While there were no direct hits to the islands, Hawaii’s 2018 hurricane season was amongst one of the most destructive in years. Picking up the pieces after a major catastrophic event, many learn the hard way: not all hurricane-related damages are covered by insurance. Unfortunately, even if you do have insurance coverage, you may not be fully covered. A common misconception is believing that hurricane insurance is enough to prepare for the upcoming hurricane season. Instead, insuring for hurricane is a combination of insurance policies to best protect your Property from damages.
Coverage for Wind Damage
The first issue with Hurricane is wind-related damages. Your Property policy is the first way to protect your building against a hurricane. This policy protects your property from damage caused by strong winds. Windstorm is typically a covered peril on a “named peril”, or special form property form. When a storm becomes “named”, Hurricane coverage will apply to the loss. When coverage is provided for Hurricane, most policies will have a specified Hurricane deductible amount, separate from the deductible for other covered perils. The hurricane deductible is typically a percentage of the Total Insurable Value (TIV) of the Property, subject to minimum for some insurance carriers. As defined by the National Hurricane Center (NHC), Hurricane is a type of tropical cyclone, which are classified as the following: Tropical Depression (maximum sustained winds of 38 mph or less), Tropical Storm (maximum sustained winds of 39-73 mph), and hurricane, from Category 1 (74-95mph) to Cat 5 (156 mph and up). For some, this is where they believe that this is all the insurance needed for Hurricane. Unfortunately, wind damage is only one part of the equation by hurricane, despite the misconception that this is “hurricane insurance”. While flying debris and physical damage from strong winds is a major risk during hurricane, flood damage is also common in a hurricane but the reality is that most flood damage will not be covered by this policy.
Coverage for Water Damage
Along with strong winds, hurricanes can bring heavy rains, overflow and tidal surges. The second half, and often overlooked part, of “hurricane insurance” is a flood insurance policy. Flood insurance can be purchased separately through the National Flood Insurance Program (NFIP) or through a private insurer. Flood Insurance can be purchased to protect your building (structure), as well as your contents. It is important to note that flood insurance has specific parameters for coverage. Flooding is defined by the NFIP as a “general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or two or more properties from: overflow of inland waters, unusual and rapid accumulation or runoff of surface waters from any source and mudflows” which can be brought on by hurricanes. Flood is excluded in most policies yet it poses a severe threat during Hurricane season. As evidenced in 2018 with Hurricane Lane, the State of Hawaii did not take a direct hit but many areas suffered from severe flooding.
Moratoriums and Waiting Periods
Ready or not, when a hurricane is on its way, you have to act fast. It can be tempting to wait until you need coverage to buy insurance, but by that time, it may be too late. Insurers have restrictions on purchasing insurance coverage when the risk is imminent. Once a hurricane watch is in place it is unlikely that you will be able to get a new policy or make policy changes at the last minute. It varies by state and insurance company; however, once a hurricane is forthcoming, it may be a lot harder to place coverage. For Hurricane coverage, many insurance carriers will issue a moratorium which stops the purchase of new policies, the increasing of limits; or the adding of new locations. During hurricane season, carriers usually wait until a storm is 24 to 48 hours from impact before declaring a moratorium, but this varies by insurance carrier. The National Flood Insurance Program does not issue moratoriums on buying coverage during a hurricane, but the NFIP imposes a mandatory, 30-day waiting period on new policies before coverage takes into effect. The 30-day waiting period also applies to endorsements that add or increase coverage.
Bottom Line
Despite the common misconception regarding “hurricane coverage”, the bottom line is: insuring for hurricane is a combination of insurance policies – 1. Windstorm including Hurricane and 2.Flood – to best protect your property from damages. Hurricane insurance coverage is needed but the reality is that flood insurance ends up being of the utmost importance for people come hurricane season, and it is coverage that people need to make sure they have. One of the hard lessons that come out of every natural disaster comes from a denied insurance claim. Unfortunately, many policyholders misunderstand their insurance policies and are blindsided by unforeseen gaps in coverage in their insurance program. This makes it crucial for all Building Owners and Property Managers to know what your insurance policy really covers, and more importantly, what it does not cover. Taking the time to review your coverages with an insurance professional could be the difference between paying a deductible amount for a covered claim, and paying steep out of pocket costs to recover from uncovered losses after a hurricane.
