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A blow to hurricane coverage

By Jay MacDonald · Bankrate.com
Thursday, August 7, 2014
Posted: 2 pm ET

While homeowners from Hawaii to the Hamptons worriedly watch the skies this summer for the severe weather events that inevitably impact their homeowners insurance rates, Louisiana customers of State Farm have already weathered a hit this season -- to their hurricane coverage.

© justasc/Shutterstock.com

Last month, Louisiana's 380,000 State Farm home insurance customers, representing roughly a third of all insured homes in the state, received word that their policies now include a mandatory 5 percent hurricane deductible instead of its standard 2 percent.

That means a customer with a $200,000 home will be tapped for the first $10,000 in hurricane damage before their homeowners insurance kicks in, rather than the $4,000 they would have faced with a 2 percent hurricane deductible.

The hurricane deductible hike accompanied an average premium increase of nearly 9 percent statewide, according to the Louisiana Department of Insurance.

Higher deductible, not even higher rates

State Farm spokesman Gary Stephenson characterized the new hurricane deductible, which went into effect for new policies last November and renewals a month later, as the lesser of two evils.

"Going to the 5 percent hurricane deductible is one step we are taking to help hold down premium rates as much as possible," Stephenson told The (Baton Rouge) Advocate.

Louisiana Insurance Department spokeswoman Ileana Ledet says State Farm was under no obligation to either obtain the Insurance Department’s approval for the deductible hike or report it along with the company's rate increase.

"They (State Farm) can implement the deductible change as long as they apply it to all policyholders, and it's done statewide," she told the newspaper.

The move came as a not-so-gentle reminder of the billions in claims that State Farm paid on Louisiana homes damaged and destroyed by Hurricane Katrina in 2005, as well as the company's Gulf Coast exposures in Hurricanes Rita (2005), Humberto (2007), Gustav (2008) and Ike (2008).

Same as a 20 percent rate hike?

But it still doesn't sit well with Bob Hunter, director of insurance for the Consumer Federation of America, who says the hurricane deductible hike and the new State Farm rates together bring the average rate increase closer to the 15-20 percent range.

Fortunately, with predictions for a mild hurricane season largely holding true so far, Louisianans may be spared the policy pain this year.

Follow me on Twitter: @omnisaurus

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