Savvy Consumer: Shop around for a better homeowners insurance policy

With State Farm, Texas' largest home insurer, raising its rates on homeowners policies by an average 4.5 percent statewide by June 1, this may be a good time to shop around and make sure you have the right plan at the right price.

Fortunately, scores of other insurers are competing fiercely for new customers in North Texas, including relatively new arrivals like Amica and AAA.

"It's important to shop," said Deeia Beck, public counsel and executive director of the Office of Public Insurance Counsel, a state advocate for insurance consumers. "We've found that people who don't change are the groups being overcharged. Make your insurer continue to earn your business."

Earlier this year, the insurance office and the Texas Department of Insurance pared down a rate increase filed last year by Texas Farmers Insurance Co. from 9.8 percent to 4 percent, Beck said.

Since deregulation in 2003, insurers can simply file its new rates with the Insurance Department in what's called a "file and use" process. The agency does not have to approve the rates before they go into effect, but the agency can still review and contest them if it finds them unreasonable.

Rate increases tell only part of the story, however.

Shopping for insurance has become more complicated in Texas. Whereas the state once mandated a few standard policies, there are now scores of different policies.

"Most insurance policies are complex," said Beck, whose agency reviews insurance policies for misleading or illegal language and works with insurers to revise the plans before they are available in the marketplace.

While choice can be good, it can also be confusing, said Alex Winslow with Texas Watch, an Austin watchdog group focused on insurance reform through legislation.

"There's so much variety, exclusions and addendums in policies, it's virtually impossible for the consumer to know what they own," Winslow said. "We get calls from consumers all the time finding out they weren't covered for water damage or when their dog bit somebody."

Beck also hears consumer complaints regarding confusion over a policy's deductible, which is generally a percentage of the insured value of the property. For example, a 1 percent deductible on a $150,000 house is $1,500.

"A lot of people think that 1 percent or 2 percent deductible is tied to the amount of the claim," she said. "They are surprised by their out-of-pocket costs. That's what we found with Hurricane Ike."

Most policies have two deductibles -- one for hail and wind damage, and another for other claims, such as a kitchen fire or water damage. Hail and wind typically carry a percentage deductible, while other damage typically has a dollar-figure deductible, said Ron Morgan, an Arlington independent insurance agent.

Beck said her office will seek a change during the 2011 legislative session requiring that deductibles be written out in a dollar figure.

Winslow says Texas Watch will push the legislature for a more standardized policy. That would allow consumers to better compare insurers by price.

Until then, while price is important, consumers should be sure to discuss a policy's coverage with an agent before buying, Morgan said.

"Sometimes you get what you pay for," he said.