Brokers prepare for big hail deductibles

The ‘new normal’ of record-setting hailstorms in Alberta may be leading to a ‘new normal’ of higher and peril-specific deductibles for customers, Alberta brokers say.

 

“We need to make sure our clients are aware that a hail claim on their house will have a much higher deductible than what they’ve had in the past,” said Julie Crawford of The Insurance Place. “Last year, they might have had a claim that had only a hail deductible of $500. This year, the minimum is $1,500. And it could be more depending on which company it is and where their home is located.”

 

Severe hailstorms in Alberta in 2010 and in 2012 led to a combined total of approximately $600 million in insured damages, according to figures from the Insurance Bureau of Canada (IBC). 

 

A July 12, 2010 hailstorm, which resulted in golf ball-sized hail that dented cars, set a record for storm damage in Alberta, causing about $347 million in insured damage. The previous record was held in 1991, when a 30-minute storm generated approximately 62,000 insurance claims and $342 million in home and auto property damage.

 

Protecting themselves against further claims damage, insurers in the province have started to increase their deductibles for hail damage in home insurance policies. Wawanesa increased its deductibles in November 2012, and Intact, Canada’s largest insurer, will be introducing a new hail and wind deductible starting on May 1, 2013.

 

Intact has separated its hail and wind deductible out of the home insurance policy and has introduced it as a separate, peril-specific deductible – to the tune of $2,500. This deductible is due to be introduced in May.

 

Bill Eckhart of Touchstone Insurance said brokers are still learning how the new deductibles may affect their clients. He also wonders about the longevity of peril-specific hail deductibles. 

 

“The big question for me with respect to this peril-specific deductible angle that Intact is taking is this,” said Eckhart. “Intact is the big dog in the P&C business in Alberta and that’s all there is to it.  When they make a fundamental shift like this, is everyone else going to fall in line behind them? 

 

“Is this going to be the new way? Or is this going to blow up in their face and nobody else is going to follow along, and they are going to be marching down the street by themselves? If everybody in the business falls into line, well then all of a sudden they are innovators.”

 

And yet, in other respects, insurance companies are shying away from being the first to introduce bold new ideas for minimizing deductibles by reducing claims costs. Some brokers have suggested, for example, that companies reduce costs by focusing on how they are paying for roofs to be replaced.

 

For example, insurers are paying for some old, damaged roofs to be replaced after a hail storm, even though the roofs are old enough to have reached replacement age.

 

“One thing we were talking to the companies about, and no one seems to want to make the change first, is maybe eliminating the roof coverage for hail damage after a certain number of years,” said Crista Costen of Costen & Associates. “Right now, insurers are offering replacement costs on roofs that are 10-15 years old. If they limited the coverage on some of those roofs after they reach a certain age, that might help reduce claims costs.”