Three of the states hardest hit by Hurricane Sandy have notified homeowners' insurers operating there that they won't be able to charge special "hurricane deductibles" that can add thousands of dollars to consumers' costs from filing claims.
New York's insurance regulators on Wednesday afternoon announced their decision, on the heels of moves over the past two days by regulators in New Jersey and Connecticut.
The deductibles apply to residents with standard homeowners' policies whose homes are damaged by such things as fallen trees or wind-borne debris.
Typically, the special deductibles are calculated as a percentage of the dollar amount of coverage on a dwelling, according to Insurance Information Institute, a trade group.
The use and terms varies by insurance carrier, and can go as high as 5% under some policies, insurance agents say.
Benjamin M. Lawsky, superintendent of New York's Department of Financial Services, said in a statement Wednesday that regulators had informed the insurance industry that hurricane deductibles haven't been triggered as Sandy didn't have sustained hurricane-force winds when it hit the state.
Such special deductibles have become more common over the past decade as insurers have sought to put more of the cost of hurricane damage on the backs of people with property in the riskiest areas. Each state sets its own rules for when the deductibles can go into effect.
Hurricane Sandy was shaping up to be one of the biggest tests of the hurricane-deductible concept as it moved up the Atlantic Ocean.
But Sandy weakened just before it landed in New Jersey, leaving the deductibles short of the hurdles the three state regulators had required them to clear to go into effect. It's unlikely they met those requirements in the other states where Sandy had later traveled, either.
Sandy was a Category One storm, the lowest-intensity rating for hurricanes, as it neared New Jersey, but was downgraded to non-hurricane status just before it actually landed in the state, so a key requirement for the deductibles wasn't met, a spokesman for the New Jersey Department of Banking and Insurance said Tuesday.
In New Jersey, the special deductibles apply to losses only if from a storm that is designated a hurricane by the National Weather Service with sustained wind speeds of 74 miles per hour measured somewhere in the state, according to the Insurance Information Institute and the state.
Meanwhile, regulators with Connecticut's insurance department notified property-casualty carriers operating there that Sandy didn't meet the state's threshold for the costly deductibles, a spokeswoman said.
Connecticut's rules require federal authorities to issue a "hurricane warning" for the state, and for the state to sustain hurricane force winds, according to a notice dated Oct. 30.
Big insurers in the Northeast include Allstate, Chubb and Travelers (TRV).
Of course, much of the damage to people's homes appears to have come from flooding, and standard homeowners' policies don't cover flooding damage. Flood coverage is provided through specialized policies. The federal government's National Flood Insurance Program is one of the primary sources for this separate coverage.
Homeowners who get coverage under the federal flood insurance program typically pay a deductible of $1,000 or $2,000 depending on the riskiness of the area in which they live.