Today New Jersey Gov. Chris Christie signed an Executive Order prohibiting insurance companies from imposing hurricane deductibles on victims of Hurricane Sandy. In the course of doing so, he explains that Hurricane Sandy “did not meet the regulatory threshold to trigger the application of hurricane deductibles by insurance companies in New Jersey.” In other words, Hurricane Sandy wasn’t really a hurricane.
From the Office of the Governor:
Trenton, NJ – Taking action to save homeowners money following Hurricane Sandy, Governor Chris Christie signed Executive Order 107, prohibiting insurance companies from imposing costly hurricane deductibles on New Jersey homeowners. An important part of the recovery of New Jersey will be the influx of funds that occurs when insurers settle claims by New Jersey homeowners. This action will increase the total size of the payments made by the insurance industry, helping residents rebuild their homes and speed New Jersey’s path to recovery.
“We need to ensure that homeowners are not forced to pay higher out of pocket costs than required as they begin the rebuilding and repair process,” said Governor Christie. “While Hurricane Sandy was a devastating storm, it did not meet the regulatory threshold to trigger the application of hurricane deductibles by insurance companies in New Jersey. This executive order makes it clear that consumers do not have to pay these unusually large and often unexpected amounts.”
A hurricane deductible typically can be in the amount of two to five percent of a property’s insured value. Thus a $500,000 house with a four percent hurricane deductible would result in a homeowner being responsible for a $20,000 deductible, rather than a more standard deductible in the $500-2,000 range. The deductible is the amount the policyholder must pay before the insurer would start covering the loss. Insurers are permitted to charge hurricane deductibles in certain circumstances. However, as the National Weather Service classified Hurricane Sandy as a post-tropical storm prior to landfall in New Jersey, the storm did not meet the first regulatory threshold required to apply a hurricane deductible.
So if a homeowner’s insurance policy requires a hurricane deductible of, say, $20,000, the insurer will be allowed to impose a deductible of no more than $500 – $2,000. Because — hint, hint, nudge, nudge — Hurricane Sandy was a storm, not a hurricane.
In essence, Gov. Christie is doing exactly what this Twitter user urged him to do several days ago:
This may be good politics, but as a matter of public policy it’s highly questionable.
If Hurricane Sandy doesn’t “meet the regulatory threshold to trigger the application of hurricane deductibles,” as Christie asserts, then why is this Executive Order needed? No insurance company in its right mind would attempt to charge policyholders hurricane deductibles if doing so would violate New Jersey law.
This looks to us like a clear-cut effort to redistribute wealth ex post facto from insurers to policyholders. Twitter user @RayZorback correctly points out the likely adverse effects on the market for hurricane insurance:
Higher premiums. Fewer insurance companies offering coverage for hurricanes and other catastrophic natural disasters. These are some of the effects that New Jersey homeowners can expect to see as a result of Gov. Christie’s ill-considered Executive Order.