State Farm: Its Conn. Deductible Decision Grounded in Fairness

October 14, 2011

State Farm Insurance says U.S. Senator Richard Blumenthal’s request that the company drop Irene-related hurricane deductibles in Connecticut would actually be unfair to policyholders and introduce all sorts of uncertainty.

State Farm — the largest U.S. insurer of homes and cars — pointed out that ignoring existing, regulator-approved insurance agreements would introduce uncertainty and confusion for people everywhere.

And, State Farm added, hurricane deductibles were triggered in only a small number of claims in any case.

The current hurricane deductible rule is also getting another look from state regulators in wake of Irene. Connecticut Insurance Department told Insurance Journal that the department is working on modifying the state’s existing regulation.

For many insurers, 2011 has already turned out to be a very costly year in catastrophe losses. Last month, State Farm reported that it paid $5 billion to its customers in catastrophe claims thus far.

• Here is State Farm Insurance spokesman Phil Supple’s comment offered to Insurance Journal in regard to U.S. Senator Blumenthal’s request:

“In the few instances where a hurricane deductible was triggered, State Farm is continuing to apply these according to our agreement approved by the state. The bottom line is – our decision is grounded in fairness to all policyholders. To ignore deductibles this one time would not be fair to customers everywhere who’ve dealt with disasters in the past and paid deductibles. Ignoring deductibles also wouldn’t be fair to customers everywhere who currently pay higher premiums to have lower or no deductibles in the event disaster strikes.

We are simply following the guidelines as approved by state regulators in Connecticut, just like we do and policyholders do in every other part of the country.

When we step back, the question we ask is if one ignores the criteria in a certain case – what do you say to policyholders who have followed the rules and paid deductibles during past disasters? What do you say to victims of the Joplin and Tuscaloosa tornadoes or the Texas wildfires? Why wasn’t an exception granted for them? Those are the questions we, as the nation’s largest insurer of homes, keep asking and encourage others to ask.

To be clear, no CT government officials have questioned the applicability of the hurricane deductible. The state’s department of insurance understood and approved our policy which includes HD applicability for 24 hours following the downgrade of hurricane. (Hurricanes don’t stop on a dime even when downgraded, and can be erratic. So, the guidelines approved by the state cover damage during a hurricane as well as damage caused 24 hours after a hurricane is downgraded.) So, under state-approved rules, damaged caused by a tropical storm is indeed subject to an HD, if the damage takes place less than 24 hours after a downgrade from a hurricane.

Ignoring existing, regulator-approved insurance agreements would introduce uncertainty and confusion for people everywhere, creating a man-made disaster far worse than any natural one. Insurance protects you from the unexpected. How certain can that protection be, if parts of previously agreed to contracts are potentially subject to change with each new storm or other catastrophe?

It’s important to note, a great majority of claims have been paid without an HD applying: 1,559 CT Irene clams reported; 674 had no HD policy; 341 had an HD, but had not been triggered; of the 544 (10 commercial) remaining claims, 365 had been individually inspected with 255 claims having an HD apply.”

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