Storms blew up deductibles

• By TED GRIGGS
• Advocate business writer
• Published: Jul 14, 2008 - UPDATED: 12:05 a.m.

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Three years ago, Hurricane Katrina swamped southeast Louisiana, wrecking thousands of homes and businesses. Large portions of New Orleans lay under water or in ruins. St. Bernard Parish was a ghost town. And the state’s property insurance landscape was forever altered.

In 2005, Dr. C. Ray Halliburton Jr., a Baton Rouge internal medicine specialist, paid Allstate $1,966 for a homeowner’s policy with a $500 deductible. This year, the policy was $2,407, but the deductible for storms was 5 percent of the home’s value, or roughly $15,000, for hurricanes. Halliburton chose not to renew.

“I wouldn’t even have looked if it hadn’t been for this hurricane deductible because I’ve been happy with Allstate. They gave me good service,” he said. “But I thought, I have to look and see what my options are.”

Halliburton found coverage through another company, Liberty Mutual. The new policy also contains a storm deductible, but it’s 1 percent. Meanwhile, his annual premium dropped to $1,098.

Switching insurance companies was “kind of a no-brainer,” Halliburton said.

Similar scenarios are taking place throughout the state. Once simply an option, hurricane and windstorm, or wind/hail, deductibles have become mandatory for most homeowners. Hurricane deductibles apply only to damage from hurricanes, while windstorm deductibles apply to any wind damage.

Insurance Commissioner Jim Donelon said the biggest change after the 2005 hurricanes was “the absolute shutdown” of writing coastal coverage from Maine to Texas.

“The more-recent change of ‘OK, we’ll put our toe back in the water, but only with these large named-storm deductibles,’ has been the second-biggest change,” he said.

Hurricane deductibles differ from standard deductibles that make the homeowner responsible for a set dollar amount. A $500 deductible means the homeowner has to pay the first $500 in damage.

Hurricane and windstorm deductibles are based on a home’s value. If a house has an insured value of $200,000 and the policy carries a 5 percent deductible, the homeowner is responsible for the first $10,000 in damage.

Donelon estimated 75 percent of insurers in Louisiana have a hurricane and/or windstorm deductible.

State Farm, the state’s largest insurer, with 32 percent of the homeowner’s market, has instituted a statewide hurricane deductible — 2 percent of the value of a home. Allstate Insurance Co., with 8.5 percent of the market, implemented a 5 percent deductible.

In Louisiana’s coastal areas, the deductibles for some insurers may be as much as 15 percent, according to the Insurance Information Institute, an industry-funded group that tracks trends and data. In the 18 states with the deductibles, the average is about 2 percent.