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Thursday · September 16 2004

Florida Examines Higher Insurance Deductibles
I can't stop thinking how much it would suck to live in Gulf states this hurricane season. Aside from keeping your family safe and dealing with the stresses of temporary displacement, lost income, and likely, massive home repair, you have to worry about state insurance laws sticking it to you even more with each successive storm.

In Florida, the mandatory deductible for homes valued at more than $100,000 is 2 percent; it is 5 percent for homes insured for more than $250,000. The standard $500 deductible remains unchanged for homes valued at less than $100,000.

With a 2 percent deductible on a $200,000 home, the owner pays for the first $4,000 in damages.

That is expensive enough when just one hurricane has hit. But now, with the arrival of Hurricane Ivan, some homeowners may face three sets of deductibles.

As state law stands now, the higher deductibles can be applied to a single home for each of the storms so that the owner of a $200,000 home could wind up having to pay as much as $12,000 for repairs for three hurricanes before collecting a dime from an insurance company.

Just doesn't seem right.

NYT login: kegz03/kegz03

What you had to say:
September 16 2004

It may seem somewhat fair if you add up the deductibles and the premuims and it ends up being less than what the insurance company has to pay to rebuild your $200,000 home. I guess I'd want to know what the premiums were, and how much the insurance companies pay out of pocket.

Of course, we could just abolish the insurance companies and if your house gets hit by 3 hurricanes: you lose everything.

Typically, it feels like most people pay more to insurance companies than they ever get back, but if you figure that your money may go to these hurricane makes it seem like less of a waste.

September 16 2004

Steve, that's not how you figure fairness in the insurance industry. Insurance companies are businesses that sell a product (assumption of risk) at a price (a sometimes complex mixture of premium, deductible, limits). If insurance companies are taking it in the teeth, that's business. They need to price their product better or assume less risk via reinsurance treaties etc.

It has nothing to do with how much the insurance companies pay out of pocket. This has to do with what is considered an occurance under the terms of the policy. I don't know much about weather related policies, but I know that it seems wrong for someone to have to pay an extra deductible because their home was in the declared hurricane zone for hurricane #2 when their home was wrecked by hurricane #1 or vice versa. As I understand it, if you have one claim to make for the whole season, you have to pay deductibles for each time your house was in the declared zone.

Insurance companies are in business because they make money. If they don't properly manage the risk they assume, they lose money, and go out of business. They're not providing a social service or doing anyone a favor. It's in their best interests to lobby for laws like this one and pay out as little as possible.

I believe your "we could just abolish the insurance companies" statement falls under the "Lunatic Fringe" section of the Conversational Terrorism article that I linked to a couple months ago.

September 20 2004

Of course they're in the business to make money, that's the point of a business. But some laws are designed to protect businesses such as insurance companies or else no one would take the risk to create that type of business. (also, isn't reinsurance set up via legislation as well?)
What do you mean "if insurance companies are taking it in the teeth, that's business?" How does that work with properly managing their risk (and pricing)?
Perhaps there is a better way for pricing to work than charging 3 deductibles in one season, but the current law is a reaction to the 11 insurance companies that went out of business during Andrew. And I thought it was also meant to protect the homeowners from insurance companies charging higher % deductibles.

What I meant to convey in my prior post was: it seems that it would cost a person a whole lot more to pay for a $200K home that gets hit by 1, 2, or 3 hurricanes out of pocket than paying the 12K plus premiums to cover ...therefore, abolishing insurance companies is not a good idea. That last part was meant to convey the idea that I don't see abolishing insurance companies as a solution (or putting them out of business for that matter).

Thanks for the website link...but I believe that pointing me to the site falls under "Irritants" somewhere.

These articles may explain some of the facts/figured behind that NY Times article, although they do not discuss the multiple deductible problem:

© 2004 Jason Keglovitz