A unit of State Farm, the largest homeowners’ writer in Texas, has filed to eliminate flat dollar-fee deductibles and move to a minimum 1% deductible for all perils in the Lone Star state.
State Farm Lloyds is eliminating flat dollar-amount deductibles that currently range from $500 to $4,000. It also is introducing 4% and 5% deductibles, according to a filing with the Texas Department of Insurance.
The only exception to the percentage-based deductible, which is based on the insured value of the home, would be homes valued at less than $100,000, where the minimum deductible would be $1,000, State Farm spokesman Kevin Davis said.
State Farm Lloyds is seeking an overall statewide average homeowners increase of 9.6%, effective Oct. 15 for new business and Dec. 1 for renewal business, according to the filing. While Texas is a “file and use” state, the insurance department is reviewing the filing, a spokesman said.
The average premium effect will be an additional 1.4%, Davis said, and the discount for people who get both homeowners and auto insurance from State Farm will rise to 25% from the current 20%. Some 85% of its policyholders in Texas get both homeowners and auto coverage from State Farm, Davis said.
State Farm is facing higher claims numbers and higher claims costs, Davis said. The company has paid some $410 million in homeowner claims and $115.5 million in auto claims to customers in Texas this year, mostly from hailstorms and wildfires in the spring. Those figures do not include claims from the latest wildfire outbreak, including hard hit Bastrop County.
While State Farm is moving toward higher deductibles nationwide, less than half of its customers have percentage all-peril deductibles, and less than half have all-peril deductibles of at least $1,000, spokesman Dick Luedke said in an email.
A higher deductible means the customers will be more invested in doing what they can to prevent a loss, said Luedke. “That is obviously good for the insurer. To the extent that it lowers costs, it’s good for all of our customers. And to the extent it inspires the owner of the home with the higher deductible to think more about loss prevention in all areas of his or her life, it is good for him or her as well.”
The last homeowners rate change for State Farm Lloyds, a 4.5% increase, took effect about 15 months ago. The last rate increase implemented for auto insurance was for a statewide average of 2.4%, effective just over a year ago, Davis said.
Texas homeowners, on average, pay among the highest homeowners premiums in the nation, because of the severe weather ? everything from hailstorms, tornadoes, hurricanes and wildfires. The average homeowners premium in Texas was $1,460 in 2008, according to a report by the National Association of Insurance Commissioners (Best’s News Service, Dec. 7, 2010).
Much of Texas is experiencing a devastating drought this year, and August marked the third consecutive month of less than one inch of precipitation in Texas, according to the National Climatic Data Center.
Since the fire season began in Nov. 15, the forest service and local fire departments have responded to more than 20,600 wildfires that have scorched more than 3.5 million acres, and this year is the worst on record for fire losses in the state, according to the Insurance Council of Texas. (Best’s News Service, Sept. 9, 2011).
As members of the National Association of Mutual Insurance Companies prepare for their annual convention later this month in Indianapolis, the catastrophic weather events of this year will be a key topic of discussion, NAMIC President and Chief Executive Officer Charles M. Chamness said.
As a result of the severe weather events this year, “I would not be surprised to hear members talk about the way the property insurance market needs to evolve,” with inland writers taking some lessons from coastal writers and adopting some of their practices, Chamness said. He made his comments in the context of talking about the upcoming NAMIC convention and not specifically about the State Farm filing in Texas. Percentage-based deductibles are common for wind perils, as well as for earthquake insurance policies.
The companies with the largest market share in the Texas homeowners’ multiperil market in 2010 were State Farm Group, with a 29.03% market share; Allstate Insurance Group, with 12.57%; Farmers Insurance Group, with 12.45%; USAA Group, with 7.71%; and Liberty Mutual Insurance Cos., with 5.23%, according to BestLink, which provides online access to A.M. Best’s database of insurance information.
State Farm Lloyds has a current Best’s Financial Strength Rating of B++ (Good). State Farm Group has a current Best’s Financial Strength Rating of A++ (Superior).
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