State Farm’s hurricane deductibles spur request from state’s Insurance Commissioner
State Farm has announced that it has begun reviewing a request from Louisiana Insurance Commissioner Jim Donleon regarding homeowners insurance. The Commissioner has issued a request to the insurer concerning the offering of a second deductible option for hurricanes. Commissioner Donelon notes that hurricane deductibles have become common in coastal states, where hurricanes are somewhat frequent. State Farm recently introduced a 5% deductible for its homeowners insurance policies in Louisiana.
Deductible has attracted controversy from homeowners
The deductible is meant to reduce State Farm’s exposure to financial loss. Given the fact that Louisiana is somewhat exposed to hurricanes and that homes located in the state have little defense against these natural disasters, State Farm has deemed the deductible prudent. The deductible has been criticized by policyholders and some state officials, however, with some suggesting that it is a poor business practice. It should be noted that this is the same deductible that Allstate introduced some five years ago, so State Farm is not the only insurer looking to mitigate its losses from natural disasters.
Insurance Commissioner asks for options concerning deductibles
Commissioner Donelon wants to ensure that homeowners have some flexibility in the way they handle their new deductibles. The Commissioner has suggested that State Farm offer an option in which policyholders opt for a 2% hurricane deductible on their homeowners insurance coverage, paying the remaining 3% deductible as part of their monthly premiums. Such an option may raise rates by a modest amount, but could ensure that homeowners have more financial security in the event of a hurricane.
State Farm has offered a lower hurricane deductible in other states, but is still reviewing whether such an option is viable in Louisiana
State Farm has not said whether or not it will offer such an option. Notably, State Farm also introduced a 5% deductible on homeowners policies in Mississippi. The insurer did offer the 2% option in that state, allowing homeowners to pay more for their coverage for a lower hurricane deductible. Whether or not this option will be available to homeowners in Louisiana has yet to be seen.