High deductibles Following windstorm or hailstorm losses are becoming the normal state of affairs. Insurance agents as a matter of course should explore and offer their clients “deductible buy down “ coverage. But what happens and how does a policyholder pay for the otherwise huge deductibles which are becoming commonplace?

Three friends from the construction industry out of Lubbock, Texas, came up with a concept of paying the deductible over a period of time with a company called, FundMyDeductible. Drew Houghton from our Oklahoma City office was telling me about his meeting with one of the owners, Ryan Davis. Davis explained that many contractors will accept payment of the deductible over a period of time. His company merely processes the loan and transaction. It seems like a “win-win” scenario. Here is his company’s video explaining how it works:

John Houghtaling helped FundMyDeductible by making certain the authorities and insurance regulators would accept payment of a deductible over a period of time rather than right away. They showed it to politicians and the Attorney General’s office to make certain the product was in compliance with the law.

I called Steve Badger about the product and service to see what he and the insurance industry would say. My impression is that so long as there are legitimate attempts at collection and the policyholder is held accountable for paying the deductible, even Steve Badger has no problem with this product providing a way for consumers to pay for their share of the insurance restoration.

High deductibles are not good. My experience is that those accepting them are also the least likely to be able to afford them after the loss occurs. Condominium Associations should avoid them to prevent noncompliance with bylaws which normally do not allow such burdens to be placed on members. Agents should not try to compete on price by placing their customers with insurers who only write with high deductibles and should explore and offer deductible reduction coverage.

Still, if you are stuck and need a financing mechanism to fund the deductible, this common-sense product may be your answer.

Thought For The Day

Money was never a big motivation for me, except as a way to keep score. The real excitement is playing the game.
—Donald Trump

  • Steven Badger

    The authors of our new Texas deductible law specifically contemplated some homeowners not being able to pay their deductibles in full at the time of repairs. To address this anticipated issue, language was added to the legislation allowing a “copy of an executed installment plan contract or other financing arrangement that requires full payment of the deductible over time” as reasonable proof that a deductible has been paid. As anticipated, deductible installment plans and deductible financing companies have recently appeared in Texas to help consumers in this situation. That’s great to see. If the installment plan or financing arrangement legitimately requires full payment over time, with resulting consequences for nonpayment (collection lawsuit, referral to collection agency, reporting to credit bureaus, etc.) then it is consistent with the intent of the new law.
    Unfortunately, we have already seen numerous schemes where the homeowner is told: “Just sign this and give it to your insurance company – but you really dont have to make payments.” I also recently saw a “contract” that financed a $1000 deductible with payments of $2 a month for 500 months (42 years). Really?
    I have been assured by many that FMD creates a legitimate installment plan with a reasonable term and that there are real penalties/consequences for nonpayment. If accurate then I personally believe their program is consistent with the new law and achieves the desired objective of ensuring that deductibles are paid..
    One issue remains. An insurance company is not required to make a final replacement cost value (RCV) holdback payment until the entire claim amount has been actually incurred. Arguably, if the homeowner pays a deductible in monthly installments over time, under the terms of the policy an insurance company would only be required to pay the RCV holdback equivalent to the deductible amount as each individual monthly payment is made. Such a position would be consistent with the policy and Texas law. But, obviously that creates an administrative nightmare for everyone. No one wants to process or receive RCV payments in small monthly installments. Thus, I would expect that as deductible installment plan and financing companies establish themselves over time as legitimate and actually requiring payment, most insurance companies would release the entire RCV holdback amount immediately despite not having a legal obligation to do so. But for now, as the schemers are already out there trying to find ways around the law, skepticism can reasonably be expected. Like everything else in the insurance claims world, the con artists and schemers eventually fail and go away, while the legitimate companies will remain around for the long run. I expect this will be no different. I hope FMD will remain around for the long run.
    Thanks for blogging about this important issue. It is nice to see the days of the “deductible eater” are over in Texas. Reputable contractors can now compete on a level playingfield and consumers are less likely to fall victim to scam artists offering a “free roof”.
    As you know, I always welcome a dialogue on these issues. My email address is below if anyone has questions or concerns.
    Steve Badger

  • I am afraid that the deductible issue goes much deeper than that. It is a known fact that the majority of citizens cannot come up with a $1,000.00 in the event of an emergency. https://money.cnn.com/2018/01/18/pf/lack-of-savings-cover-unexpected-expense/index.html

    Out of the many studies done, they all came close to the same conclusion. They don’t have it for the immediate, and cannot gather it together in 6 months, or a year.

    If we know this, how can we unconscionably place deductibles way above those levels, then hinge participation of the carrier upon the full payment?

    The next issue we see will be predatory lending practices brought on by a new stream of income introduced as solution. Knowing what we know, if they cannot afford the deductible today, the odds of them doing so tomorrow or the next day. When they are faced with a choice of food or paying the financed deductible, food will win, every time. While there may have been no credit check to obtain, I am certain there penalties for not paying… such as reporting to the big three credit agencies. This will do a number of things, the least of which, will ultimately raise their premiums because of their poor credit.

    I believe in the deductible, and the partnership it creates with the insurer. I instruct every person I come into contact with to do unto others. That translates to a simple philosophy. If you expect the carrier to perform under the contract, then you must expect and do the same. That starts with following the policy yourself, and paying your full deductible. Two wrongs will never make a right.

    Great topic Chip, as always… #ProtectTheInsured

  • ND

    would love to invite these folks to FAPIA