With hurricane season upon us, it is important for coastal cities to understand the special deductibles that apply in the event of a "named storm." The season began June 1 and will end on November 30.
According to the SCMIRF coverage contract, a named storm is defined as any specific storm with a sustained wind speed of 39 miles per hour or greater that has been named and declared by the National Hurricane Service or Central Pacific Hurricane Center to be a hurricane, typhoon, tropical cyclone or tropical storm.
When a named storm is declared, cities in the counties of Beaufort, Charleston, Colleton, Georgetown and Horry are subject to a 1 percent named storm deductible or their elected deductible, whichever is higher, but not both.
The deductible is applied based on a "unit of insurance." Each of the following is a separate unit of insurance:
- The value of each separate building
- The value of personal property located in each separate building
- The value of computer equipment located in each separate building (written as property extensions)
- Personal property in the open including inland marine as scheduled
- The value of each vehicle damaged
- Actual value of business income or rental income loss for 12 months immediately following the date of the direct physical loss, damage or destruction.
- Any limitations of coverage based on agreed value endorsement or vacant/unoccupied endorsement.
The 1 percent deductible is based on the values of these units of insurance not the loss amount. To illustrate how this deductible would apply in the event of a named-storm loss, the following example is provided:
Named-storm deductible causes $100,000 building loss and $50,000 contents loss to a town hall in a coastal territory. The insured values for a town hall are as follows:
Property Deductible: $1,000
Building Value: $1,000,000
Contents Value: $500,000
1 percent x building value = $10,000
1 percent x contents value = $5,000
In this case the loss payment will be as follows:
Building Loss: $100,000 – $10,000 = $90,000
Contents Loss: $50,000 – $5000 = $45,000
Maximum loss payment to this building: $135,000
In the event multiple buildings with contents or other units of insurance are damaged, this calculation will apply separately to each.
The named-storm deductibles are higher than non-catastrophic deductibles so that property insurance can be offered in areas more likely to sustain catastrophic losses from named storms, while keeping coverage affordable.
Flood coverage is another important issue. If property is located in a high-risk flood zone (zones A or V or any zone beginning with the letters A or V), coverage by SCMIRF is in excess of maximum NFIP limits offered ($500,000 building/$500,000 contents), whether purchased or not. This applies whether or not property is in a coastal region. If in a coastal region, this deductible would apply before any named-storm deductible, if coverage is not purchased through NFIP.
It is important to understand the impact of deductibles and how they may affect your exposure to loss. For questions, contact Meredith Kaiser, underwriting manager, at mkaiser@masc.sc or Cindy Martellini, claims manager, at cmartellini@masc.sc.