Higher loss exposure from Florida’s new hurricane deductible limited

Insured losses arising from hurricane events in Florida will unlikely have a significantly higher impact on insurers as a result of the state’s new "annual deductible" regulation change which kicks into effect from the beginning of May this year, according to Risk Management Solutions (RMS). A market analysis conducted by the catastrophic risk assessment company suggests that insurers operating in Florida will face less than a 3% increase in hurricane-related claims costs due to the new deductible law.As from May of this year, Florida has amended its regulations pertaining to hurricane insurance and residential insured deductibles. Previously, insureds were covered under the basis of a "single event deductible" which has now been changed to an "annual deductible" essentially this means that all hurricane-related losses incurred by a policyholder during the same year are now subject to the policy’s "other perils" deductible which is substantially lower than that under the hurricane risk.The RMS study looks to the historical risk of long-term multiple damaging hurricanes occurring in any given single season known as "hurricane clustering" and concludes that repetition of such weather extremities is unlikely and that losses will mostly result when a location is negatively impacted by a single event. "When clustering occurs, it is possible for one home to be hit by more than one hurricane, as was the case for some properties last season [2004]. In this case, a seasonal deductible will result in higher insurance claims relative to a single-event deductible. However, our simulation of over one million years of hurricane activity shows that this is extremely rare. The majority of risk is driven by years when a location is impacted by only one storm," says Kyle Beatty, a meteorologist at RMS.