Louisiana Commissioner Asks State Farm to Offer Lower Hurricane Deductible

Insurance Commissioner Jim Donelon has asked State Farm Fire and Casualty Co. (State Farm) to offer its Louisiana policyholders Louisiana the option of a 2 percent hurricane deductible on their homeowners’ insurance policies by paying the actuarially needed difference in premium, if they choose.

The Louisiana Department of Insurance announced that the request is in response to State Farm’s decision to implement a statewide 5 percent hurricane deductible for all renewal policies beginning Dec. 1, 2013. The hurricane deductible was included on new policies in November 2013.

State Farm policyholders are being notified of this change in their policy renewal notices as required by law.

Commissioner Donelon made the request in a meeting with State Farm officials that was initially requested by company officials to notify the LDI of an upcoming rate filing.

“Hurricane deductibles have unfortunately become the norm for coastal states from the Gulf of Mexico all the way up the Atlantic coast to Massachusetts,” Commissioner Donelon said in the announcement released by his office. “In an effort to ease the potential financial burden on consumers as a result of this higher hurricane deductible, I have asked State Farm to give their policyholders statewide the option to buy back the lower two percent deductible.”

La. R.S. 22:1333(C), commonly referred to as the “three-year rule” prevents an increase in the policy deductible for a homeowners policy that has been in effect for more than three years except for cause listed in statute.

However, the same law allows for an increase in deductible if the increase is imposed statewide.

Insurers are not required to receive approval for a deductible change from the insurance department but they are required to give the policyholder a discount for raising the deductible to account for the policyholder taking on more risk.

The discount required by this hurricane deductible varies by geographic location and is dependent on the policy.

According to State Farm, the average statewide premium discount for having a 5 percent hurricane deductible with a State Farm policy is 6.5 percent as approved in 1998.

If State Farm agrees to Commissioner Donelon’s request, homeowners could have more control over the cost of future property damages they are willing to self-insure in the event of a hurricane.

“A policyholder with a five percent hurricane deductible on a $200,000 home would pay $10,000 out of pocket before their insurance took effect. If that same policyholder had a two percent deductible, they would pay $4,000. The tradeoff is that the homeowner who opts for the lower deductible will also lose the accompanying premium discount that comes with a higher deductible,” Donelon said.

Commissioner Donelon also reminded State Farm officials of the upcoming deadline for the company to file updated information on their currently approved all-peril and wind-only deductible credits (e.g. hurricane, named storm or wind/hail deductibles).

In December 2013 Commissioner Donelon issued Bulletin No. 2013-08 to all property and casualty insurers ordering detailed information on wind mitigation and deductible credits be submitted to the LDI by Dec. 31, 2014.

The bulletin states that each insurer provide this data in any rate filings submitted beginning Jan. 1, 2014; if they are not submitting a rate filing they must make a separate filing with the LDI no later than the end of this year.

Source: Louisiana Department of Insurance