One more example today of State insurance offices too cozy with the industry to remember they exist to serve the taxpayer. The Insurance Journal has the story, Named storm deductibles – Louisiana Legislators want just 1 yearly.
The chairman of Louisiana’s Senate Insurance Committee says he will ask companies to use the percentage deductible for named storms only once for homes or businesses hit by both hurricanes this year.
Senator Don Cravis, a Democrat from Opelousas, says he, the chairman of the House Insurance Committee and Insurance Commissioner Jim Donelon are considering a bill to make such a limit mandatory. (emphasis added)
Many insurance companies are setting deductibles for named storms as a percentage of a property’s value – up to 5 percent. That could mean payments of up to $10,000 – $5,000 per storm – for someone whose $100,000 house has a 5 percent named storm deductable and was hit by both hurricanes Gustav and Ike.
Donelon told the committee on that he could support a one-storm limit. But he said banning the special deductibles entirely would keep many companies from selling insurance in Louisiana. (emphasis added)
As Judge Senter here in Mississippi has pointed out, hurricanes deliver a one-two punch of wind and water. Gustav’s wind definitely punched Louisiana and the policy holders that elected Mr. Donelon are picking up the cost. The Advocate has that story.
Changes made to attract insurance companies to Louisiana after hurricanes Katrina and Rita have not yet taken effect uniformly across the state.
But a large number of insurance policies now require homeowners to first pay deductibles based on the value of the house — up to 5 percent of the house’s value — before the insurers begin paying to repair damages caused by Gustav. Five percent, for instance, is $7,500 on a house valued at $150,000…
“Named storm deductibles,” which are increasing as policies are renewed, apply only to damage caused by storms given names like Gustav. It was created as a way to give insurers the option of sharing the risk of storm damage with their policyholders…
“What the named storm deductions do, it allows carriers to lower their rates because the consumer is taking some of the risk for themselves,” [Greg] LaCoste said. (emphasis added)
Some of the risk! Try all. Mr. LaCoste of la-la land is vice president with the Property Casualty Insurers Association of America.
New Baton Rouge homeowner Linda Lodato said she realized Thursday that the $1,000 deductible in her policy does not apply to the damages she sustained during Gustav.
Lodato said she now has to pay $2,400 — 2 percent of the value of her home — out of her own pocket. The cost of removing the three trees that fell on her roof was $2,500, she said..
Is Lodato paying a lower premimum as a result of sharing the risk and assuming the cost?
Amy Bach, executive director of United Policyholders, a San Francisco-based consumers group, said she does not think anyone in Louisiana feels like they are paying lower premiums.
Since the Louisiana Insurance Rating Commission was disbanded last year, it is uncertain if any safeguards have been put in place to ensure that reductions in coverage have been accompanied by reductions in premiums, Bach said.
A letter to the editor of the Advocate explained how Lodato could find herself with even more expense uncovered.
…if you have that $7,500 deductible and Gustav hits your house and causes $6,000 in damage, the deductible applies and you have to pay all of that out of pocket, but then if Ike hits two weeks later and causes ANOTHER $6,000 in damage to your house, the insurance company can apply yet ANOTHER deductible, meaning you’d have to pay that $6,000 in Ike damages out-of-pocket too! And if yet a third storm hits two weeks later and does another $6,000, you are on the hook for that as well. In this scenario, the homeowner would have to pay $18,000 out of pocket, and the insurance company would pay NOTHING.
The whole reason one buys insurance is to avoid having to pay thousands and thousands when something bad happens! But — and this is what REALLY outrages me — our state government also allows the insurance company to impose this deductible on a PER-STORM basis.
What’s really outrageous to me is that state government in Louisiana allowed the insurance industry to to impose the deductible at all. Perhaps limiting the authority of the Commissioner is something the Legislature should consider if they’re really serious about reducing the risk facing property owners in the State.