3 Things to Consider When Choosing a Wind and Hail Deductible

Monday, March 13, 2017 - 8:00am
image of tornado hitting house

Recently, Oklahoma has seen some changes in the wind and hail deductible options for homeowners insurance policies.  Many consumers tend to feel like they understand the coverage well enough to make an informed decision, but the more I talk with them, the more I realize that they have an incorrectly skewed understanding of the way the deductible works.  So today's article is designed to help explain, clarify, and re-affirm the consumers understanding of the wind and hail deductible.  There will be three topics of discussion, recent history in Oklahoma affecting the wind and hail deductible, what your options are when choosing the wind and hail deductible, and what coverages are being offered to you in the event of a claim.

Recent History in Oklahoma:

In 2012 Oklahoma was devastated by a plethora of hail storms and tornados that swept through the state destroying anything in their paths.  I was working as an insurance adjuster when the first storms hit in 2012.  I remember the nightmare in the claims office that year.  Management welcomed overtime up through about three weeks after the storms, just for us to handle the phones.  Some of us worked seven days a week over 12 hours a day.  Stressful was putting it lightly.

That was also the same time I was approached to start my career as an insurance agent.  Shortly after the first storms in 2012 hit, I left my job as an adjuster and became an agent.  Guess what happened the next month?  Oklahoma was devastated with anther wave of storms.  Homeowners who did not file a claim in the first storm certainly filed one in the second storm.  Roofing companies had not even finished putting new roofs on when the 2nd wave hit.

By the end of 2012, the insurance companies were hurting.  They had put new roofs on over 90% of their clients in Oklahoma.  They had to repair almost 65% of the autos insured.  Moreover, they were not happy.

However, 2012 was not the end of the damage.  In May of 2013, once again mother nature rained down on Oklahoma.  All these brand new roofs that were put on last year needed to be replaced again.  Moreover, in June 2013 another wave of storms.  It was almost identical to 2012, but now homeowners have two claims on their home in less than 12 months.  Auto owners have between two and four claims on their car insurance.  Moreover, the insurance companies were struggling so much so, that many of them left the state entirely.  They priced themselves out of the market, non-renewed all their existing clients, and just left Oklahoma.  Other companies stopped selling new insurance policies in Oklahoma.  Moreover, insured found it exceptionally difficult to get new coverage or change from their current provider.  They also experienced major price increases on their policies, and could not do anything to alleviate the financial burden.

Now, before 2012 it was common for homeowners to have $1,000 or $1,500 deductibles for wind and hail.  The wind and hail were not separate from other deductibles.  You had the option to do a higher deductible or a percentage deductible to lower your premiums, but it was not very common.  Post-2012, insurance companies, stopped allowing the flat deductibles and would only allow a percentage deductible.  It helped lower the premiums for consumers, but it also put a lot more cost on the homeowner if a claim were to occur.  Today we see the adverse from what we did in 2011.  Most everyone has a percentage deductible on wind and hail, and it is very hard to find a good $1,000 or $1,500 deductible at a reasonable price.

What Are My Options When Choosing a Wind and Hail Deductible?

So what do you need to know when choosing your wind and hail deductible?  First, you can still get a dollar figure deductible today.  If you have your heart set on a $1,000 or $1,500 deductible, you can get them.  However, you are going to pay for it.  Choosing a percentage is going to keep your cost down, and many insurance companies are going to require you to carry a percentage deductible instead of a flat dollar amount.

Secondly, the most common deductibles today ar 1% and 2%.  They do offer 1/2% and 5%, but the most common are 1% and 2% because that gives you a relatively significant difference between the two.  I do not recommend one over the other in general.  This is a determination that the homeowner needs to make based on the risk and the premium.

Finally, it is important to understand what the percent value is based on.  This is probably the most important part of this article.  Most consumers believe the deductible is based on the cost of repair.  Others believe it is based on the expense of the roof.  Both of these are incorrect.  It is based on the coverage you carry for your entire home.  So let me give you an example:

John sits down with his insurance agent and takes out a new home insurance policy. His coverage for the home itself (we refer to this as "dwelling" in insurance lingo) is $150,000.  He has a 1% wind and hail deductible.

The next day a storm comes through town and damages John's roof.  The roof which has a value of $25,000, is going to cost John $16,000 to repair.  John's 1% deductible is 1% of the $150,000 dwelling coverage.  So John will pay $1,500, and the insurance company will pay $14,500.

NOTE: John is not paying 1% of 16,000!  This is a common misconception.

Replacement Cost/Actual Cash Value Warning!

The last item that a homeowner should be concerned about regarding wind and hail is the way the insurance companies value the roof.  Actual Cash Value and Replacement Cost are becoming more well known to homeowners in Oklahoma.  Actual Cash Value is the term used when the insurance company is going to depreciate the value of the property before they pay the claim.  Replacement cost is the term used when the insurance company does not depreciate the value of the building before they pay the claim.

Most people know to request Replacement Cost when they take out their insurance policy.  What they do not know, is that the insurance companies have safeguards in their policies to protect them possibly at the expense of the homeowner.  The insurance policies have provisions that say they will cover the cost of the roof at Replacement Cost.  However, then further down in the policy, they state that once the roof hits a certain age (usually ten years, some at 15 years), then the valuation of the roof changes from Replacement Cost to Actual Cash Value.  

So we are seeing homeowners going to an insurance agent and asking for a Replacement Cost policy.  Their roof is seven years old, and the agent writes the Replacement Cost policy on it.  However four years later there is wind and hail claim.  All though the house still has Replacement Cost on it, the insurance company is now going to depreciate the value of the roof.  This is something that all the insurance companies do, and unfortunately, many uneducated agents do not know this.  So they tell the homeowner that they have Replacement Cost regardless of the age of the roof.  That is not accurate; this is a lack of education on the agent part.  What you as the homeowner need to do is to find the insurance company that will carry 15 years on the roof and not ten years.

Conclusion

Finally, I would like, to sum up, the key components of this article.  As a homeowner in Oklahoma, you are going to experience higher homeowner rates in this state due to the catastrophic storms that devastated Oklahoma and the insurance companies pocket books in 2012 and 2013.  These storms led to a demand by the insurance carriers for homeowners to carry wind and hail deductibles in the form of percentages, not flat rates.  These rates are based on the amount of insurance you carry on the home; they are not based on the damage or repair costs.  1% and 2% deductibles are most common.  Be sure to get a Replacement Cost Value policy on the home, but know how long the Replacement Cost lasts on the roof (not the dwelling).  If the agent says that the roof is covered indefinitely, or for as long as you own the policy, find another agent because he is not very familiar with the coverage the policy offers.

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