Insurance deductibles threaten church budgets in hurricane-ravaged states

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ALEXANDRIA, La. — The property insurance market has changed in the three years since Hurricanes Katrina and Rita blew through the Gulf Coast — and Hurricanes Gustav and Ike are unveiling the extent of those changes.

During hurricane season, from June to November, every coastal state from Texas to Maine could be hit by a storm. Expanded commercial and residential development along the coastal areas has put more and more homes, businesses and churches at risk for damage from hurricane winds and water.

Insurance companies in these states are selling homeowners, businesses and churches policies with percentage deductibles for hurricane damage — instead of the traditional dollar deductibles — to remain solvent by limiting their exposure to catastrophic losses.

The hurricane deductible is unique. With a policy that has a $500 standard deductible, the policyholder must pay the first $500 of the claim out of pocket. With the hurricane deductible, however, percentages are used based on the home's or church's insured value.

If a house is insured for $100,000 and has a 2 percent hurricane deductible, the first $2,000 of a claim must be paid out of pocket for storm-related damages. For a home insured at $200,000 with a 4 percent deductible, the homeowner must pay the first $8,000. If a church building is insured for $750,000 (which is not uncommon for even some smaller churches) and the deductible is 5 percent, then the church must muster $37,500 before repairs can be made.

For example, Broussard Grove Baptist Church in Prairieville, La., sustained more than $50,000 in estimated damages from Hurricane Gustav. However, when their new 5 percent hurricane deductible of $95,000 was applied, the church was faced with absorbing the full cost of the repairs. Compounding the financial duress is the reality that the church's annual budget is $212,000. This means that the out of pocket financial loss to the church is approximately 25 percent of its annual receipts. Add to this that all the members are experiencing the same kind of challenges with insurance coverage and there is a consequential loss of capacity to give to the church and its ministries.

Mike Canady, team leader for the Louisiana Baptist Convention (LBC) missions and ministry team, reports that this problem is replicated across the damaged areas of the Gulf. While homeowners and businesses may look for some kind of response from government agencies or tax abatements, churches do not have that option. Churches will need the help of sister churches to recover from the repair costs of the 2008 storms.

Additionally, a church with a $200,000 annual budget and property valued at $800,000 may find themselves questioning whether they can afford to use their current facility as they have in the past.

One Louisiana church on the coast, Johnson Bayou Baptist Church, lost its building in Hurricane Ike and plans to use the community center temporarily for worship services. They are discussing their options of using home cells for their discipleship program.

Hurricane deductibles apply to damage solely from named hurricanes, whereas wind damage deductibles are spelled out in the homeowner's or the church's insurance policy. Percentage deductibles typically vary from 1 percent of the property's insured value to 5 percent. In some coastal areas with high wind risk, hurricane deductibles may be as high as 25 percent.

In many states, policyholders have the option of paying a higher premium in return for a traditional dollar deductible. In some high-risk coastal areas, however, insurers may not give policyholders this option, making the percentage deductible mandatory. The problem along the Gulf Coast is that the insurance rates are so high that homeowners and churches cannot afford to insure unless they accept the percentage deductibles. One report received by LBC was that the insurance premium for one of their churches required $.29 of every dollar received, even with a 5 percent hurricane deductible.

Gustav was the first major storm to hit Louisiana since insurance companies expanded their use of hurricane deductibles. While there may some political fallout from these changes that will impact future insurance regulations, the current losses will be subject to the hurricane deductible.

Another issue affecting churches and homeowners involves claims related to fallen trees, which often is a very complicated section of an insurance policy.

If the tree falls on the church's building, the removal of the tree is covered by the insurance policy but tied to the hurricane deductible. If a tree just falls in the yard or parking lot -- and damages no property -- then the property holder is responsible for the removal since the policy doesn't cover fallen trees. If a church's tree falls on a neighbor's home, the first place the neighbor must turn is their own homeowner's policy. The neighbor's insurance company will then pursue the church's insurance carrier for the liability claim.

These changes in insurance coverage represent the new "normal" that churches are experiencing in wake of Gustav and Ike. Churches need to assess their insurance policies, especially the deductible clauses, to make sure they are prepared for these kinds of losses before a storm arrives.