Louisiana Citizens Property Insurance Corp. may soon end the longstanding, and apparently unique, practice of selling policies that include a $10,000 deductible for non-hurricane damage.
The percentage of personal lines policies with the $10,000 deductible has grown by 35 percent in the past two years, although the state-backed company’s overall policy count has fallen by 12 percent, Chief Financial Officer Steve Cottrell said Tuesday. The company now has about 6,300 policies with $10,000 deductible, or 7.7 percent of the company’s entire book of business. Next year, Citizens expects to shed 10,000 of its 86,000 policies, making the contrast even greater.
“I believe we’re not servicing the company well … and in most cases, we’re not servicing the customer well because they don’t understand that they’re not buying much insurance,” Cottrell said. “They’re buying hurricane insurance. That’s about it.”
Cottrell spoke at a Citizens’ Executive Committee meeting.
Citizens is the only one of the state’s 10 largest insurers that offer a $10,000 “all other perils,” or AOP, deductible, which covers everything but hurricane damage, such as fire and hail claims, Cottrell said. The highest deductible other companies offer for non-storm damage is $5,000.
It’s unclear when Citizens began offering the policies or why, Cottrell said.
What is clear is that people buy the coverage to try and save money, interim Chief Executive Officer Vijay Ramachandran said. But the coverage is not cheap.
The average premium is close to $6,700 a year. Meanwhile, Louisiana homeowners pay an average of $1,722 for coverage.
Cottrell said one mobile home owner bought a high-deductible policy even though the home’s contents are valued at $7,000. Another high-deductible policyholder’s home is worth $20,000.
Customers don’t realize they will have to pay for the first $10,000 worth of repairs, Cottrell said.
Committee member Preston Robinson, Treasurer John Kennedy’s appointee to the board, said he sympathizes with customers who don’t understand what they’re doing.
But the board’s bigger concern is reducing Citizens’ size, a task that becomes more difficult when private insurers won’t accept Citizens’ policies, Robinson said.
Citizens is the state’s property insurer of last resort, providing policies to people can’t find coverage otherwise. After 2005’s hurricanes Katrina and Rita, private companies fled the coast. Citizens picked up the slack. By 2008, the company had become the state’s third-largest insurer with 174,000 policies. Citizens has spent every year since trying to reduce that number, mainly by encouraging private insurers to take on Citizens’ policies.
Cottrell said Citizens now has two options: eliminate the $10,000 deductible and switch to a $5,000 deductible, a move that will increase customers’ premiums by an average of $1,000, or renew the existing policies but cease writing any new policies.
The first option is the right thing to do, Ramachandran said. Citizens’ purpose is to provide basic property insurance to people entitled to it, and not the cheapest insurance.
State law requires Citizens to charge 10 percent more than private insurers.
The $10,000 AOP deductible is just a way to reduce premiums, and in a way that private insurers don’t, Ramachandran said. Moving to a $5,000 deductible will increase the cost of Citizens’ policies and encourage customers to shop for other alternatives, which, he said, many consumers will find.
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