After Hurricane Harvey, did your school district discover that the damaged property coverage was far less than expected or nearly zero after the deductible? An explanation as to how two comparable school districts with similar damage could experience very different property insurance recoveries after deductibles is excerpted below from the March 2018, School Insurance Newsletter, published by Robert V. Reim Company, Insurance Consulting, Bid Management.
"Beware of % Deductibles
With the heavy Hail losses over the past two years and the devastation of Hurricane Harvey, Texas insurers have experienced huge financial losses. In addition to increasing premiums across the State, they are increasing deductibles such that we are seeing more percentage deductibles with higher percentages than ever before.
Important! The % applies to value shown on the property schedule – not the amount of a loss. Example: Hail loss of $2,000,000 with building replacement cost of $35,000,000, a 3% deductible = $1,050,000, not $60,000. Because of such deductibles, for both Harvey and for hail storms, many districts discovered they actually had no insurance recovery.
In analyzing the effect of various deductibles, insurers may use a table like the one below and a total cost analysis of historical losses, deductibles and insurance premiums.
|
Building
|
Value
|
2% Deductible
|
3% Deductible
|
5% Deductible
|
|
Elementary
|
$20,000,000
|
$400,000
|
$600,000
|
$1,000,000
|
|
Middle School
|
$35,000,000
|
$700,000
|
$1,050,000
|
$1,750,000
|
|
High School
|
$50,000,000
|
$1,000,000
|
$1,500,000
|
$2,500,000
|
|
Concentration
|
$100,000,000
|
$2,000,000
|
$3,000,000
|
$5,000,000
|
In addition, it is essential to understand how the deductible % and minimums apply. A district discovered after Harvey that the % applied to the total schedule of values, rather than just the damaged properties. Be certain that the % deductible applies only to the damaged buildings. Some deductibles apply to the total building and contents value even if only one is damaged.
The application of the Minimum Deductible is also important. Minimums can be $100,000, $250,000, $500,000 or even $1,000,000 and should apply to the entire loss (Occurrence) – not building or location.
Coverage wording varies; “Location” or “Unit of Insurance” is often found. Obtain a written definition.
So buy a flat deductible whenever possible. If not available, purchase:
- % Deductible by Damaged Building
- Minimum Deductible by Occurrence"