Senate Bill S3324

                                
 
BILL NUMBER: S3324

SPONSOR: LAVALLE
 
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 poli-
cies. 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 policy-
holders, 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 estab-
lished 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 appor-
tionment of hurricane risk between insurers and policy holders.

 
EXISTING LAW:

Section 3445 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, 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 $500,000 would result in the policy-
holder 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., $250, $500, $1,000). Percentage deductibles are generally
found in health insurance programs, where policyholders are required to
pay a percentage of a medical claim. Therefore, policyholders 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 '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 catastroph-
ic 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 require-
ments for understandable and fair standards will ensure that catastroph-
ic windstorm deductibles are reasonable, actuarially appropriate and
applied in the proper circumstances.

 
LEGISLATIVE HISTORY:

2017-18 S.2062 A.6665;
2015-16 S/253A/A.7537A;
2013-14 S.2032/A.2729;
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 regu-
lations required in section 3445 of the insurance law, as amended by
this act.