An Insurance Break for Homeowners

The portion of a home's roof destroyed by Superstorm Sandy, in Long Beach Island, N.J., Oct. 31, 2012. Photograph by Luke Sharrett/The New York Times/Redux

The switch to calling Sandy a superstorm instead of a hurricane wasn’t just a matter of semantics: The change could save homeowners thousands of dollars. That’s because homeowner insurance policies in coastal states often have a clause that says if damage is caused by a hurricane, the out-of-pocket deductible changes. The standard deductible is a flat maximum (typically up to $1,000), but in a hurricane, the deductible is between 1 percent and 5 percent of the insured value of the home. For most people, that means the deductible could increase several-fold.

New York Governor Mario Cuomo made clear yesterday that insurers should not treat Sandy as a hurricane. “Sandy did not have sustained hurricane-force winds when it made land in New York,” said Benjamin Lawsky, the New York state superintendent of financial services, in a statement. The governors of Connecticut and New Jersey made similar announcements. What the governors says has real force because insurers are regulated at the state level.

These changes affect only standard homeowner policies, which cover damage caused by wind. But as I explained on Tuesday, storm surge damage isn’t covered by regular homeowner insurance. For that type of water-related damage, people must have special flood insurance, which is almost always sold through a federal program.

In general, the fact that a storm is powerful enough to earn a moniker can help businesses recoup losses from their insurers. That’s because some companies carry policies that explicitly cover what are called “named storms,” though caps on coverage often apply.

The switch from hurricane to a superstorm comes as estimates of the losses from the storm are growing. This morning, the risk modeling firm Eqecat upped its numbers, saying the total economic damage from the storm is between $30 billion and $50 billion, with the insured losses ranging from $10 billion to $20 billion. Whatever you want to call Sandy, its toll is mighty, and the questions over who will pay have just begun.

Before it's here, it's on the Bloomberg Terminal.