Due to the upcoming start of Hurricane Season on June 1, the Professional Insurance Agents (PIA) of Louisiana launched a public awareness campaign that includes the following tips for insurance consumers to prepare for the upcoming season, information regarding the availability and affordability of property insurance in south Louisiana and available insurance consumer resources.
Flood insurance vs. homeowners insurance
Flood insurance is NOT covered under homeowners policies in Louisiana, and wind and hail may not be covered either. No matter where you live, it is extremely important that you consider whether you should purchase a separate flood policy.
Your mortgage lender may not require you to purchase flood insurance, but that doesn’t mean you don’t need it. Almost 25 percent of all flood insurance claims come from areas with minimal flood risk, according to the National Flood Insurance Program.
Do not put off buying flood insurance; it may be up to 30-days from the date of the purchase until your new flood insurance policy goes into effect.
You cannot purchase home or auto insurance in a hurricane-prone area once a storm is already in the Gulf of Mexico.
The NFIP provides flood insurance not exceeding $250,000 for your house and $100,000 for its contents. Excess flood coverage can be purchased through private insurers on both your property and its contents.
Actual cash value (ACV) vs. replacement cost value (RCV)
You want to understand the difference between these two payment options and know which applies to your insurance policy.
For ACV, the maximum potential payment the insurance company will make for damage to covered property is based upon the ACV (or depreciated value) of the property at the time of loss.
ACV Example: Two years ago you paid $500 for an item. That item had a reasonable life expectancy of 10 years. You have already received two years (or 20 percent) use of that item when it was damaged. That item (or a comparable equivalent if that item is out of production) currently sells for $500 new. Based upon ACV coverage, the most you would collect is $400 ($500 less 20 percent depreciation).
For RCV, the maximum potential payment the insurance company will make for damage to covered property is based upon the current cost to replace the property with NEW comparable property.
In the example above, the most you would collect under RCV is $500, because no depreciation is applied.
Availability and affordability of property insurance in South Louisiana
Since Hurricanes Katrina and Rita, PIA of Louisiana has received numerous consumer calls regarding the availability and affordability of property insurance in the state. While we had availability issues prior to the storm, PIA in conjunction with the Louisiana Department of Insurance was experiencing success in getting the positive messages out to encourage additional property markets to consider doing business in Louisiana. However, now that insurance companies have experienced substantial losses due to Hurricanes Katrina and Rita, considerable changes are being made to limit availability, reduce property coverages and increase rates in south Louisiana. PIA would like to point out several issues for consumers to better understand the factors that affect both availability and affordability of property insurance.
–Private insurers DO NOT have to do business in Louisiana. While it is the job of the Department of Insurance to regulate insurance companies admitted to do business in Louisiana, it is a balancing act because companies can choose to not do business in the state. The Department of Insurance cannot mandate an insurance company to do business in the state.
–Insurance companies exist to make profits. While this fact may seem insensitive to those that experienced tremendous losses from the storms, it still remains a fact that we must accept and work within if we are going to have available insurance markets. Since insurance is about risks, if conditions become such that a company does not feel that risks are manageable, they are going to reduce risks, by reducing coverage, raise rates to better manage risks and/or eliminate risks, by exiting the market.
–Insurance companies cannot be expected to pay for losses that they did not contractually agree to nor did they receive premium for the coverage. For example, many lawsuits have been filed to make homeowners’ insurance companies pay for flood damage when the policy clearly excludes flood (and premium for flood coverage was not collected). While it is understandable that emotions are high from the devastation of Hurricanes Katrina and Rita, it would not help the market situation to try to change the contracts now. If these lawsuits prevail, many insurance companies will become bankrupt, thus leaving them unable to pay legitimate claims and create more challenging market availability for the future.
–Due to the incredible losses from last year’s storms and the predictions for another bad hurricane season, many insurance carriers have had to increase rates, reduce coverages and/or limit access to certain parts of the state. Since companies have the freedom to not conduct business in Louisiana, it would not be in the best interest long term for lawmakers to pass legislation to create more burdens for insurance companies willing to do business in the state. Rather, we encourage consumers to contact their legislators to urge them to oppose any legislation that creates more barriers for insurance companies to do business in the state as to ensure a healthy insurance climate for the future.
–A competitive insurance market is greatly in favor of the consumer.
–If you are having a difficult time finding an insurance market, please contact the PIA so we can provide you with an agency referral that can help you obtain markets by calling (800) 349-3434.
Insurance consumer information resources
In the aftermath of Hurricanes Katrina and Rita, many insurance agents were displaced and policyholders could not contact their agents or their insurance companies. Communications became a huge problem and many were unable to get the necessary questions answered for them to move forward. In preparation of this hurricane season, PIA of Louisiana highlighted some beneficial resources for consumers to use.
PIA of Louisiana’s Web site – Following Hurricane Katrina, PIA developed an interactive database where consumers could search for their agents and/or insurance companies. General information was also provided on the consumer section of this site. To view this site, go to www.piaoflouisiana.com.
To be added to PIA of Louisiana’s insurance consumer e-mail distribution list e-mail the group at email@example.com.
The Louisiana Department of Insurance – The Department of Insurance is available to serve the citizens of this state. On their Web site, www.ldi.state.la.us, you can find several resources available to you. Questions or complaints may also be lodged by calling (800) 259-5300 or (800) 259-5301.
Mediation Program – The Department established a mediation program to help resolve claims disputes between insurers and Louisiana policyholders arising from damages to residential property caused by Hurricanes Katrina and Rita. Mediation is paid for by the insurance company and is free to the policyholder. For additional information, contact the American Arbitration Association at (800) 426-8792.
The National Association of Insurance Commissioners (NAIC) – NAIC launched a consumer education Web site to help consumers with general insurance issues. The NAIC has tips on how to protect yourself when buying auto, home, life or health insurance. To view this site, go to www.insureUonline.org.
Source: PIA of Louisiana
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