Governors Declare Sandy not a HurricaneState governors in New York, New Jersey and Connecticut declared that Sandy didn’t make landfall as a hurricane. The declaration would save homeowners thousands of dollars in insurance costs because it would exempt them from insurers’ hurricane deductibles.

Hurricane deductibles require homeowners to pay 1 percent to 5 percent of their property’s value. Other regular deductibles require homeowners to pay a set amount, which ranges from $500 to $1,000. A policyholder with a house worth $300,000 and hurricane deductible of 5 percent would be required to pay for the first $15,000 in damages before insurance payments are made.

Hurricane deductibles would take effect when storms reach sustained winds of 74 miles per hour or more, which is the strength of a Category 1 hurricane. State governors from New York, New Jersey and Connecticut said that Sandy didn’t qualify as a hurricane.

The insurance industry also reached the same conclusion that the sustained wind requirements were not met. According to Robert Hartwig, president of the insurance information institute, people would not be charged hurricane deduction due to Sandy.

Hartwig added that conditions that trigger hurricane deductibles are clearly stated in the homeowner’s insurance policies. They are approved by state insurance departments.

Hurricane deductibles were introduced by insurers when they had to make heavy payouts for Hurricane Andrew in 1992 that has caused $15.5 billion in damages. Insurers in hurricane-prone states along the Gulf of Mexico and the Eastern seaboard have added the deductible to their policies.

Eqecat, a disaster and risk-modeling company, insured losses caused by Sandy were estimated to be around $10 billion to $20 billion. There are times that insurers apply hurricane deductibles improperly. A storm could hit Long Island, New York, as a hurricane but it could weaken as it moves inland. Those living in Albany could be hit by hurricane deductible even if the storm was downgraded before it reached them.