The most common case of percent deductibles is in Catastrophe (CAT) property coverage – carriers mandate a deductible be a percentage of insured value (with a minimum) rather than a flat dollar amount. Yet two options that look the same could be anything but.
A primary difference lies in how or to which figure the percentage is applied. If you have a combined 100M in coverage, with 70M of that building and 30M contents, is your (e.g.) 5% deductible applied to 30M or 100M? That’s a question with three and a half million dollars of relevance.
Now imagine that same claim happens on a multi-location policy with a 500M limit – does our deductible then apply to that aggregate value? Yikes.
The preferred method is to apply the deductible to only the specific coverage part(s) triggered by the loss . You’ll often see policies refer to this as a “per coverage unit” deductible; the coverage units typically being Building, Contents, and Business Income/Extra Expense. Doing so means if you have a loss to only (e.g.) Contents and Income you only pay the 5% of the value of those two items. “Coverage unit” can be further itemized, such as if you have large amounts of categorized “Outdoor Property” or “Property of Others”.
Note this ultimately requires identifying the underlying value of these “coverage units”. This is done either via reference to the policy declaration or, more typically, to the Schedule of Value (“SOV”) on file with the carrier. Be aware what this means: the itemization on your SOV is ultimately what determines your deductible. In other scenarios, this might be a non-issue, but here, lumping values into a single entry or evenly allocating a sum total across locations could obligate you to a much larger deductible than imagined.
Percent deductibles vary not only in the dollar amounts they represent but also in how they are triggered. Because of this they demand scrutiny as well as a good scrubbing of your SOV. Pay close attention to the values on which the percentage is based, and aim to secure one that applies “per coverage unit”. Also make sure your SOV is itemized correctly as, after all that, we don’t want to be left holding the bag because a spreadsheet had 25 lines instead of 26.