Can’t Cover Your Home Insurance Deductible? New Disaster Insurance Could Help | Insurify

A new kind of disaster insurance is emerging to help homeowners stay afloat financially until their home insurance claim comes through following a disaster.

Financial well-being is declining, and more than half of American homeowners don't have close to enough savings to cover high insurance deductibles. Insurers are seeing the need and creating products to help bridge the gap.

Recoop Insurance offers a unique disaster insurance product in 47 states to homeowners and renters living in state-declared or federally declared disaster areas. Unlike similar models, payouts aren't based on the magnitude of the disaster. Consumers can choose coverage plans ranging from $5,000 to $25,000.

Coverage with conditions

Recoop's model is similar to parametric disaster insurance but has some notable differences. Parametric insurance covers a set amount based on the magnitude of the event, not the magnitude of the loss, according to the National Association of Insurance Commissioners (NAIC).

For example, Sola Insurance offers parametric coverage for tornado damage. Sola covers up to $15,000 for any out-of-pocket costs and pays claims within days, using National Weather Service data to determine the payout amount. Recoop's payout depends on your chosen policy limit, not the event's magnitude. Damage is similarly assessed through photos and must be from one of the covered perils.

Recoop provides homeowners and renters with quick support, but it's not without requirements. Residents must have an active homeowners or renters insurance policy to qualify. The damage must also stem from one of seven covered perils: hurricanes with storm surges, tornadoes, wildfires, winter storms, earthquakes, dust storms, or gas explosions.

In the event of a covered peril, policyholders will receive a cash payout in 24–48 hours, using before and after pictures to demonstrate damage.

"Recoop is for homeowners and renters to help cover the gaps in their insurance," Chief Distribution Officer Kelly Anonson told Insurify.

The gap: low savings vs. high deductibles

Financial well-being among Americans declined in 2022, according to the Federal Reserve's Survey of Household Economics and Decisionmaking. An estimated 54% said the largest expense they could handle is under $2,000, according to the survey.

The average homeowner has a savings of $85,430, and renters have an average savings of $16,930, according to the Federal Reserve's 2022 Survey of Consumer Finances. But the median savings is lower: 50% of homeowners have savings of $15,000 or less and half of renters have savings of $2,000 or less.

These savings levels could spell financial disaster for homeowners and renters living in high-risk areas.

Earthquake insurance deductibles are 2%–20% of your home replacement value, according to the Insurance Information Institute (Triple-I). The California Earthquake Authority, for example, has a 15% main property deductible, which translates to a $45,000 deductible on a policy with $300,000 in dwelling coverage.

Hurricane deductibles, a required add-on to some home insurance policies, have a 1%–10% deductible, according to the NAIC. Wind and hail insurance deductibles can be up to 5%, according to Triple-I.

Homeowners buying flood insurance can choose a higher deductible to lower premiums, making them responsible for more up front. Policyholders can use Recoop payouts to cover those initial costs.

What's next: Balancing risk while helping homeowners

Recoop uses a risk-based model, like most insurers. The average annual premium is $440 for a $10,000 policy. The average premium for the same policy in more risky areas, like California, Louisiana, and parts of Texas and Florida, is $850.

The company sells most policies through employer benefits offerings but also sells directly to consumers.

"Insurers are asking consumers to take a greater share of risk by increasing deductibles," said Betsy Stella, vice president of carrier management and operations at Insurify. "As a result, while insurance is meant to be a financial safety net for consumers, the higher deductibles are leaving homeowners with more financial exposure than they can afford in some cases. It makes sense for these kinds of gap or filler coverages to come into play. I don't know if it will succeed, but this kind of insurance fills a real need in the marketplace."