Homeowners insurance inflation in Louisiana guaranteed

Homeowners insurance inflation in Louisiana guaranteed

Tommy Santora

Rising homeowners insurance premiums will soon hit many Louisiana residents’ checkbooks.The Louisiana Department of Insurance has OK’d average premium rate increases above 10 percent for seven insurance companies in the state. To increase a premium more than 10 percent annually, insurance companies must go before the Louisiana Insurance Rating Commission.Under Louisiana’s flex band law, state insurers can raise or drop premiums up to 10 percent without going before the LIRC. Louisiana Farm Bureau Mutual, with 70,063 policyholders in Louisiana, increased rates the most at 49.15 percent, while Lafayette Insurance Co. (11,006 Louisiana policyholders) will push rates 37.9 percent higher and American Reliable Insurance (18,522 Louisiana policyholders) will go up 34.36 percent.Some residents will pay more or less than the average rate increase depending on location.Allstate, Louisiana’s second-largest insurer with more than 200,000 policyholders, will increase rates an average of 20.6 percent for nearly half of its policyholders. Allstate Indemnity, which Allstate Insurance formed in 2000, will increase rates 20.6 percent rate for its 96,117 customers. Allstate Insurance, which consists of 105,915 Allstate policyholders signed before 2000, will increase rates 9 percent.Policyholders are going to start understanding all too personally how Katrina was the costliest natural disaster in U.S. history, said Tommy McMahon, CEO of Eustis Insurance & Benefits, an independent New Orleans insurance broker. Rates are higher, deductibles are up and some coverages are being reduced or simply eliminated.Five hurricanes – Katrina, Wilma, Rita, Ophelia and Dennis – accounted for $52.7 billion, or 93 percent, of the total $55 billion in insured losses in 2005, according to the New York-based Insurance Information Institute. Louisiana accounted for $27.2 billion of the losses or nearly half the total.In 2004, four hurricanes in Florida caused $22.9 billion in insured losses. The following year, Florida insurers filed for rate increases ranging from 15 percent to 30 percent.Insurers defensiveDespite the general conception rate increases are mainly brought about by insurance company losses, Rob Hair, an Allstate Insurance state manager, said increases are actually determined by the prediction of costs going forward.We look at what customers’ losses will be based on the upcoming year ahead and different models we use to determine our increases, Hair said. For example, fire, auto and theft projections in certain areas are looked at on a yearly basis, while the frequency of catastrophes such as tornadoes are looked at over a span of 30 years. For hurricanes, insurance companies use season projection models developed by scientists to determine the severity of the season and water temperature models in the Atlantic Ocean are also considered. Hair said insurance companies began using hurricane season projections in 1992 after Hurricane Andrew.You add all those things up and you come up with an average rate increase, Hair said.Morris Anderson with State Farm, Louisiana’s largest home insurer with one-third of the market share, said the company anticipates increased building and material costs in conjunction with weather predictions and hurricane season models. It’s an actuarial science or a sophisticated guess of what you intend to see in the future, Anderson said. You try to do the fair thing and it’s a combination of future climate, loss experience, projection of loss ahead, area and type of policy.State Farm filed for a 3.3 percent average rate increase. The company has settled 97 percent of 200,151 Katrina and Rita claims.Hair said Allstate has paid out $2 billion in insured losses following Katrina and Rita, settling about 90 percent of the total 220,000 claims in Louisiana and Mississippi.There are two reasons not all the claims have been settled, Hair said. Contractor estimates have forced us to reopen claims, while in some of the more complex claims, we’re still deciphering between actual wind and flood damages. Insurance elusiveAfter Katrina and Rita, some insurance companies excluded wind policies from new coverages, stopped writing new policies in parts of southern Louisiana and stayed away from policies on second homes.State Farm will not add new customers south of Alexandria but if an existing customer moves to another home in Louisiana, they can buy another policy.Carl Duffield III, president of the Insurance Network of Louisiana in Baton Rouge, said Allstate is no longer writing policies south of Baton Rouge and the company is trying to get away from wind coverage and secondary dwellings.Louisiana makes up 22 percent of Allstate’s total market share compared with 14 percent in 2000.We have grown dramatically in Louisiana but now we want to take a timeout and spread our risks as a company, let other states catch up to total market share, Hair said.Duffield said the nonprofit auto club AAA, which recently entered the Louisiana home insurance market, is the main writer for post-Katrina new policies in New Orleans and other severely damaged areas. Farm Bureau Insurance canceled the wind portions of its policies in parishes along the Gulf Coast and around Lake Pontchartrain and referred policyholders to Louisiana Citizens Property Insurance Corp., a state-sponsored insurer of last resort formed in 2003 for Louisiana homeowners.Some companies are getting rid of wind coverage and telling policyholders they can get wind through Citizens, said Manuel DePascual, owner of Alliance Insurance Agency Services, a Metairie broker since 1987. This year has been its own animal and will change a lot of things in the industry.Citizens, where premiums typically cost 10 percent more than the average of the top 10 insurers in a given parish, paid more than $1 billion in hurricane claims. Citizens had 125,000 policyholders before Katrina and the insurer estimates it will service about 200,000 policyholders by the end of 2006.To help Citizens recover, the cost has been passed on to insurance companies assessed 15 percent of their premiums. They are allowed to pass that one-time cost directly to the policyholders. Citizens will make up the rest with an $825-million bond issue.These one-time assessments are going to surprise some people and knock them for a loop, said Duffield, noting all policyholders will pay a one-time charge of between 13 percent to 18 percent of their premium. Even policyholders in north Louisiana will be paying the fee. Wait until they get that bill.

Copyright 2006 Dolan Media Newswires

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