Home Insurance Articles
How Home Insurance Differs In High Wind Environments
2010-09-24
Living in high-wind environments has a major impact on home insurance rates and coverage availability. With the increase in hurricanes over the past several years, insurance companies have taken steps to decrease their risks in coastal areas. These steps have included raising premium rates and deductibles, as well as denying or canceling coverage for homes in high risk areas.
Insurance companies which insure homes in high-wind environments purchase insurance policies for major catastrophes from reinsurers. These are giant financial institutions, many of which are based in Europe. They have raised their premiums, some by 300 percent, for companies that sell home insurance policies in hurricane prone areas. These costs are passed on to the consumers in the way of higher insurance premiums and deductibles or even denial of or refusal to renew coverage.
After weathering the effects of hurricanes such as Hugo and Katrina, insurers re-evaluated their coverage options. Many insurers determined that the risk was too great and refused to renew policies for homes located in highly potential hurricane areas. Others raised the premiums substantially making it impossible for homeowners to continue their coverage. This is possible because, unlike flood insurance, which is available to all homeowners at affordable prices because of federal regulations, wind damage insurance has no government regulations to cap the home insurance rates.
Insurance companies have also adopted other means to help protect themselves from loss in the event of a major high-wind catastrophe. Along with the increase in premium rates, there has also been an increase in the deductible should damage occur as a result of wind. Where once a low deductible of $500 per occurrence was available; now there are higher minimum deductibles of 1 percent to 2 percent of the policy value applied specifically for wind damage in most coastal areas. This means if your home is insured for $300,000, you will have to pay the first $3,000 to $6,000 out-of-pocket, depending on your deductible.
Owning and insuring a home in high-wind environments may continue to become increasingly difficult and expensive. Most major insurance companies are backing out of hurricane-prone areas and will continue to adjust premium rates, deductibles and insurability in those areas where they continue to offer coverage. The insurance industry as a whole has even begun to track and consider the effects of global warming on weather patterns and storms as they calculate their risks and rates.
If you own a home in a high-wind environment, inquire about wind damage deductibles. Most, if not all, homes in high-risk areas will have higher minimum deductibles and a higher home insurance rate to offset the risk to the insurance companies.