Homeowners choosing higher deductibles

As property insurance grows costlier, more Texas homeowners are opting for higher deductibles.

The percentage of homeowners with deductibles of 2 percent or greater climbed to 17 percent last year, up from 10 percent in 2005.

And the increase is more pronounced in counties closer to the Gulf of Mexico.

Forty-one percent of homeowners living in counties once removed from the coast, such as Harris and Fort Bend counties, had deductibles of 2 percent or greater last year, according to data compiled by the Office of Public Insurance Counsel. That's up from 20 percent in 2005.

The numbers may actually be higher, according to consumer agency, because those counts don't include deductibles often charged separately for windstorm and hail claims.

The percentage of Texas Windstorm Insurance Association policyholders with deductibles of 2 percent or greater jumped to 42 percent last year, up from 12 percent in 2005, the insurer said.

The state-created association sells coverage to homeowners in coastal counties who can't find it elsewhere.

As hurricanes and other severe weather drive up property losses, insurers are passing along more of the financial risk to policyholders through higher deductibles.

Choosing a bigger deductible can lower the premiums consumers pay but can also leave them with a higher tab when they file a claim.

Pasadena resident Stan Ganderson felt he had no choice but to take on the extra risk when his annual premiums soared 22.5 percent, to $2,566, earlier this year.

To lower his premium, he dropped coverage for certain types of water and foundation damage and increased his deductible from a flat $1,000 to 1 percent of his home's value. The lowered coverage and increased deductible of about $1,600 brought his premium back within his budget to $1,895.

He still has a separate 2 percent deductible for wind claims.

Big increase

“I've never had an increase that big, and to have to increase my deductible and drop coverage I've had for many years doesn't seem like the right way to combat it,” he said.

Deductibles used to be flat dollar amounts, such as $500 or $1,000. But in recent years, more insurance companies have been offering deductibles that are 1 to 5 percent of the amount of coverage a homeowner purchased. Many also have separate deductibles for wind or hurricane damage.

Edward Schreiber, president of Houston-based GEM Insurance Agencies, said he's seen carriers requiring a 2 percent to 5 percent deductible for named storms, especially for people living south of Interstate 10.

The first $150,000

Some of his clients with homes valued at more than $500,000 are choosing a 5 percent deductible to keep premium costs low, he said. He recently sold a policy for a $3 million home with a 5 percent deductible, meaning the homeowner would be on the hook for the first $150,000 of a claim, he said.

“One of the things that we advise our clients who have those high deductibles is to make sure that they tell their spouses so there is not a surprise when the claim hits about having such a high deductible,” he said.

Wrong assumptions

Consumers may not understand that percentage deductibles apply to the amount of insurance on the home.

“We have heard anecdotally that some policyholders wrongly assume the 2 percent or 5 percent applies to the amount of the claim,” said Deeia Beck, head of the Office of Public Insurance Counsel.

“While we understand that some consumers may want to self-insure for $10,000 or more, we want it made clear to the policyholder what they are getting into, including the exact dollar amount of their deductible,” Beck said.

The shift to higher deductibles can also be problematic because it often occurs upon renewal, when the policyholder is not being advised by an agent, Beck said.

Cap may be proposed

Some policyholders have complained that they received notices that say their renewal is contingent upon accepting a 5 percent hurricane deductible, she said.

The Texas Department of Insurance plans to propose a rule soon that could cap how much insurers can increase a deductible and require companies to tell consumers how much their deductible would change in dollar amounts, while also providing information on how they can shop around.