1. Forms
2. FP
3. FP-03-05

What the Form Is

The FP 03 05 Windstorm or Hail Percentage Deductible endorsement is designed to alter the standard deductible provisions within a farm insurance policy for losses specifically resulting from windstorm or hail. Instead of a flat dollar amount deductible, this endorsement applies a deductible that is a percentage (e.g., 1%, 2%, 5%) of the limit of insurance applicable to the property that sustained damage. It's crucial to note that this percentage is applied to the coverage limit, not the amount of the actual loss, which can lead to a higher out-of-pocket expense for the insured compared to a fixed dollar deductible, especially for high-value property.

Classes of Business It Applies To

This endorsement is used in conjunction with Farm Property coverage forms. It is particularly relevant for agricultural businesses and rural properties located in geographical areas with a high exposure to windstorms (including hurricanes and tornadoes) or hailstorms. Examples include:

• Farms with significant building values (dwellings, barns, outbuildings) in coastal regions or areas prone to severe convective storms.
• Operations with valuable mobile agricultural machinery and equipment or livestock that could be affected by wind or hail.
• Properties in regions where insurers are seeking to mitigate their exposure to catastrophic wind/hail losses.

Special Considerations

• Calculation of Deductible: The most significant consideration is that the deductible is a percentage of the coverage limit. For instance, with a 5% deductible on a building insured for $500,000, the insured's deductible would be $25,000, regardless of whether the loss is $30,000 or $200,000.
• Separate Application: The deductible may apply separately to different categories of property (e.g., a building and the personal property within it) if both sustain damage in the same event.
• Mandatory vs. Optional: In some high-risk areas, insurers may require the attachment of this endorsement as a condition of providing coverage or may offer a premium credit if the insured elects it.
• Clarity: It is vital that the insured fully understands how this deductible works due to the potential for a substantial self-insured retention.
• Edition Date Changes: The 04 16 edition included mainly editorial changes and some clarifying language regarding livestock and mobile machinery and equipment.

Key Information for Agents and Underwriters

• Agents: Agents must clearly explain the financial implications of a percentage deductible to their clients, using examples to illustrate potential out-of-pocket costs. They should document this explanation. Cautious use of this endorsement is advised due to its impact on claim payments.
• Underwriters: Underwriters utilize this endorsement as a risk management tool in areas with high wind or hail exposure to reduce an insurer's potential payout on frequent or severe weather-related claims. It helps make coverage more affordable or available in high-risk zones. Risk assessment will involve considering the property's location, construction quality, and local weather patterns. The endorsement allows scheduling of locations and/or buildings to which the deductible applies.