New homeowners deductible rules address multiple hurricanes
by Ed Anderson, The Times-Picayune
Thursday July 02, 2009, 9:53 PM
BATON ROUGE -- Homeowners will have to wait until the 2010 hurricane season to take advantage of a new law that prohibits insurance companies from assessing more than one deductible if their homes get hammered by two or more hurricanes in the same year.
And when the protections do take effect, they will likely come with higher premiums.
The new law, House Bill 333 by Rep. Chuck Kleckley, R-Lake Charles, was signed by Gov. Bobby Jindal and went into effect when he signed it June 25. However, it will not be operative until insurance companies write new policies or renew existing ones starting Jan. 1, Insurance Commissioner Jim Donelon said Thursday.
"So, this hurricane season we have to hold our breath to get through it, " he said. The season started June 1 and runs through Nov. 30.
To offset the added money that companies may be paying when more than one named storm or hurricane hits the same policyholder, Donelon said he expects the companies to bump up premiums an average of 1.8 percent statewide -- higher in areas that are more prone to hurricanes.
Donelon said policyholders in the New Orleans area and along the hurricane-susceptible Louisiana coast may wind up paying as much as 4 percent more.
Donelon said the numbers are based on surveys of companies writing the largest number of policies in a parish, a study done for the Legislature by department chief actuary Rich Piazza.
John Wortman, chief executive officer of the state-operated Louisiana Citizens Property Insurance Corp., said although Piazza's projections are based only on private insurance companies, Citizens' rate increases will approximate the private market in the same areas.
Kleckley, chairman of the House Insurance Committee, said some hurricane-vulnerable parishes, such as Cameron and possibly the Grand Isle area of lower Jefferson Parish, may see a 5 percent increase.
"It all goes back to the free market, " Kleckley said. He said if companies want to encourage business they will not increase premiums, but instead charge less than competitors.
Sen. Troy Hebert, D-Jeanerette, who as chairman of the Senate Insurance Committee pushed Donelon's office for a parish-by-parish projection on what the new law may cost policyholders, said if the bill causes premiums to get out of hand, he will be back next year with a bill to modify the charges.
"I think we need to see how this plays out, " Hebert said. "If there are rate increases that are unacceptable we will take another look at it. . . . We are going to hold them to it (the projected rate increases). I think we have a piece of legislation that is now consumer-friendly; things could turn south in this market.
" Donelon, who made Kleckley's bill one of the main elements of his legislative initiative during the recently ended session, said the new law is modeled on one Florida passed after the 2004 hurricane season when four hurricanes hit the state, causing some homeowners to sustain back-to-back-to-back damages, absorbing thousands of dollars in deductibles after each.
He said it became all the more urgent in Louisiana when Hurricane Rita followed on the winds of Hurricane Katrina in 2005 and Hurricane Gustav and Ike battered the state just a week apart last year.
"Property owners will not be threatened with paying more than one hurricane deductible per season, which will give not only a financial savings but also peace of mind, " Donelon said.
Under the previous Louisiana law, Donelon said, if a homeowner with a $200,000 policy with a 2 percent deductible gets hit by a hurricane and a claim for $4,500 in damage is filed, the policyholder has to pay the first $4,000 of the damage and the policy pays the remaining $500. If the home then sustains an additional $1,000 in damage in the same hurricane season, the policyholder has to foot the entire $1,000 bill.
Under the new law, the homeowner would be liable for the first deductible but not the second one.
Some policies have deductibles that run as high as 5 percent, Donelon said.
Donelon said that the projected premium increases will vary, based on where the property is located, which company is writing the policy, and the value of the policy. While the average statewide increase is expected to be about 1.8 percent and in the coastal areas about 4 percent, policyholders in a rural north Louisiana parish like Union may get by with an increase of 0.3 percent to 2.1 percent, according to Piazza.
"It's all added exposure" for the insurers, Wortman said. "If the wind blows, it will save you (money in deductibles). If not, it will cost you (money in premiums)."