LIRC Approves Post-Katrina Rate Hikes

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The first post-Katrina increase in homeowners insurance rates has been approved by the Louisiana Insurance Rating Commission, beginning what is expected to be a line of rate increase requests this year.

The commission voted 4 to 1 Jan. 18 to allow ANPAC Louisiana Insurance Co. to increase homeowners insurance rates by an average of 23.3 percent statewide. New Orleans area homeowners likely will bare the brunt of that increase and see their rates rise much more than the average 23 percent.

The approved increase comes on top of a 9.9 percent increase the company did not have to take to the commission, plus another increase of about 9 percent to replenish reserves of the state’s insurance company of last resort.

ANPAC said the rate would keep the company solvent and account for new hurricane risk.

“This is not about recouping Katrina’s losses. That would be impossible,” said Byron Smith, vice president of actuarial services for ANPAC, a subsidiary of American National Insurance Co. in Galveston, Texas. “It’s about giving us long-term viability.”

The dissenting commission member, Steven Ruiz, said insurers should find other ways to address business concerns before turning to policyholders.

“We are not just going to rubber stamp increases,” Ruiz said. “People aren’t going to buy insurance. They’re going to move to the north shore or up north. They can’t afford to pay insurance and eat, too.”

Earlier this month, the Insurance Information Institute, a nonprofit group financed by the industry, said that the $12.4 billion in claims from Hurricanes Katrina and Rita in Louisiana is enough to wipe out all homeowners insurance premiums paid in the state in the past 25 years and all profits ever earned in Louisiana.

But Bob Hunter, director of insurance for the Consumer Federation of America, said there were serious questions about raising rates based on one or two hurricanes.

Hunter, the former head of the National Flood Insurance Program, said that after Hurricane Andrew, companies refined their computer models to better simulate hurricanes and predict how much damage storms might cause in different areas.

The models could factor in active or slow hurricane seasons to spread risk over a period of years, something that allowed insurance companies to plan for major disasters and set rates accordingly so they would be better prepared to handle a single catastrophe, he said.