Wind buy-back insurance, also known as a wind deductible buyback (DBB), enables policyholders with significant wind exposures to reduce their financial burden following a loss by lowering their deductibles. With a wind buyback insurance policy in place, policyholders can essentially buy down an increment or two from their percentage deductible on their primary personal or commercial property insurance policy.
Percentage property deductibles in wind-prone areas usually range from one to five per cent (1-5%). If a policyholder has a $2 million property, with a 5% wind deductible of $100,000, they could purchase a separate wind buyback policy to cover 4% of their 5% deductible, reducing their out of pocket exposure to $50,000.
What are the benefits of wind buyback insurance?
Wind buyback insurance helps property owners avoid severe out-of-pocket expenses in the event of a loss. This is particularly relevant in areas of high wind exposure, where insurance carriers are trying to offset some of the challenges of the hardening insurance market by increasing rates and/or deductibles.
Secondly, these policies are particularly useful for property owners who are subject to restriction caps on loans or mortgages. Sometimes, money lenders require property owners to reduce their insurance deductibles before they will grant loans. Having a wind buyback deductible is an effective way for property owners to meet these demands.
How much does wind buyback insurance cost?
Wilmington Insurance Agency, a Managing General Agency (MGA) and sister company of Wilmington Insurance Company, which specializes in property and liability insurance coverage explains how the cost of wind deductible buyback insurance varies on the specific exposures of the property. A blog post on the agency website states: “Typically, the premium is a percentage of the policy limit, and ranges between four per cent (4%) and 12.5%. So, using the above example, a $40,000 wind deductible buyback could potentially cost the homeowner between $1,600 and $5,000, depending on their specific exposures.”
When do wind deductible buybacks apply?
Wind buyback insurance only kicks into action for losses triggered by a wind event. So, if a property owner suffers a big fire loss, they won’t be able to reduce their deductible with a wind buyback. They will have to pay their full standard policy deductible.
Who sells wind buyback insurance?
Most specialty property insurers in the US offer deductible buyback solutions. Brokers and agents handling deductible buyback requests will sometimes have to go to separate areas of the insurance marketplace for the two different policies. Some markets don’t like taking on the full wind-exposed property risk, but they will take on a small portion of the risk, which is the buyback.
How has the hard insurance market impacted the wind deductible buyback market?
Over the past few years, the US has suffered a string of wind-related catastrophes, including some severe hurricanes. These weather events, in addition to other property loss drivers (flood, fire, hail etc.) have taken their toll on the insurance industry. Many insurers are in the process of rebalancing their portfolios by reducing their capacity in loss-stricken areas, shoring up their underwriting guidelines and increasing premiums and/or deductibles. Property owners in areas with severe wind exposure are some of the hardest hit by the firming market conditions. This has resulted in more policyholders seeking deductible buyback solutions in order to offset price increases in their standard property policies.