Bill restricts hurricane deductible exposure

The last hurricane to hit Rhode Island was Bob, in 1991. We have had plenty of scares since then, but no storms that made landfall.
Still, for insurance purposes, the Ocean State doesn’t stop being high-risk – it’s not like a driver who’s accident-free for 18 years, whom you might credit with being a particularly good and conscientious driver; the water is still right there, and we’re still plenty vulnerable.
So after Hurricane Katrina, when insurers sharply raised their premiums for homeowners in coastal areas, Rhode Islanders saw their bills skyrocket just like everyone else. And the General Assembly responded by passing legislation, in 2007 and 2008, to protect them.
For the most part, it worked pretty well. But when the R.I. Department of Business Regulation started working with insurers to implement the law, it found a problem: One section could be used to stick homeowners with big deductibles even if no hurricane ever hit the state.
“This is an unintended consequence that we were not made aware of,” said Rep. Brian Patrick Kennedy, D-Hopkinton, who chairs the House Committee on Corporations.
The law was designed to reduce homeowners’ insurance premiums by allowing insurers to impose higher deductibles for hurricane-related damage. As currently written, it allows extra-high “windstorm” deductibles of up to 5 percent of the insured value to be imposed “during the period commencing with the issuance of a hurricane warning bulletin for any part of the state by the National Hurricane Center” and ending 24 hours after the last warning ends.
Here is the problem, Kennedy said: Hurricane warnings are often issued for a long stretch of coastline – if there’s a storm approaching the coast of North Carolina, we are going to be alerted. But most storms never actually strike Rhode Island – they veer out to sea before reaching our coastline. Yet we may still get a lot of rain and wind that could cause serious damage, and as the law now stands, the high hurricane deductibles could be applied. For a house valued at $300,000, Kennedy noted, even a 3 percent deductible would impose a huge burden on the homeowner; $9,000 before the insurer pays a dime.
That does not seem reasonable to Kennedy and several of his fellow legislators, so in this session they introduced a new bill to amend the law and clarify that a hurricane deductible can only be applied if an actual hurricane causes the damage.
Specifically, the measure says, “losses are due to a hurricane when a hurricane results in hurricane force sustained winds as reported by the National Weather Service,” with Block Island also treated separately from the rest of the state.
“This bill ensures that if a hurricane does not actually hit the state but we are dealing with gale-force winds, or a microburst, or a Nor’easter, then the damages will be covered by the regular insurance policy and homeowners will not be saddled with an inflated hurricane deductible,” Kennedy said in a news release about the bill.
Already, both legislative chambers have passed a version of the measure – the House one sponsored by Kennedy, the Senate one by Sen. David E. Bates, R-Barrington. Both sides are also working fast to approve each other’s bills, aiming to get legislation approved and signed by the governor as soon as possible.
“The insurers have adopted this sky-is-falling mentality that a hurricane is imminent based on these bogus studies that have been done showing what potentially could happen to New England,” Kennedy said in an interview. “And each year we go without another hurricane actually hitting us, and we say, ‘You’ve based this all on hurricane models that aren’t worth the paper they’ve been written on.’ ”
The law would go into effect Aug. 1, which should cover this year’s hurricane season. It has to pass soon, however, Kennedy said, because the DBR has said it needs at least 90 days to go through the process of issuing new regulations and then processing the paperwork for updated rates and policy terms for the 700 casualty insurers in the state. •