One month into the hurricane season, State Farm’s 308,000 Louisiana homeowner’s customers are confronting an unpleasant change: their policies now include a mandatory 5 percent hurricane deductible.
The hurricane deductible was included on new policies in November and added to existing customers as they’ve renewed their policies on or after Dec. 1, spokesman Gary Stephenson said. Most policies had a 2 percent hurricane deductible; State Farm notifies customers of the change roughly five weeks before their policies renew.
That means a customer with a $200,000 house and 5 percent hurricane deductible will pay for the first $10,000 in damage before insurance kicks in, compared to the $4,000 the customer would have paid under a 2 percent deductible.
The mandatory hurricane deductible accompanied an average statewide rate increase of close to 9 percent on premiums policyholders pay for insurance. The increase averages 9 percent in Orleans and Jefferson parishes, 7.5 percent in East Baton Rouge, and 9.4 percent in Lafayette, according to the Louisiana Department of Insurance.
The increased hurricane deductible wasn’t part of State Farm’s previously reported rate filing nor was it required to be.
“They (State Farm) can implement the deductible change as long as they apply it to all policyholders, and it’s done statewide,” said Insurance Department spokeswoman Ileana Ledet. The company doesn’t need the Insurance Department’s approval.
“Going to the 5 percent hurricane deductible is one step we are taking to help hold down premium rates as much as possible,” Stephenson said.
State Farm paid billions to its Louisiana customers for Hurricane Katrina claims and many millions more to cover policyholders’ damages from hurricanes Rita, Gustav, Humberto and Ike. But that is why State Farm exists, he said, to take care of customers.
Robert Hunter, insurance director for the Consumer Federation of America, said the 5 percent hurricane deductible has a big impact on rates.
The hurricane deductible makes State Farm’s average rate increase more like 15 percent or 20 percent, Hunter said.
Stephenson said without the storm deductible, the rate increase on premiums would have been higher than 9 percent, but he did not know how much greater.
State Farm is the state’s largest insurer with roughly 30 percent of the homeowner’s market. The company had requested a 16.6 percent rate increase in November 2012. But Insurance Commissioner Jim Donelon rejected that request in January 2013. Donelon questioned the profit built into the rates and the estimated cost of reinsurance, which is the insurance that insurers buy to protect themselves.
State Farm refiled, requesting an increase averaging 15.2 percent statewide. The Insurance Department eventually approved an 8.7 percent increase statewide. The increase went into effect for new customers on Sept. 15 and for customers renewing their policies on Nov. 1.
Stephenson said he did not know when, prior to Nov. 1, State Farm discussed increasing the hurricane deducible with the Insurance Department.
State Farm has increased homeowner’s rates by more than 36 percent since 2008, according to Insurance Department records.
Follow Ted Griggs on Twitter, @tedgriggsbr.