58% Wind Rate Boost by Louisiana’s Last Resort Insurer

Louisiana Citizens Property Insurance Corp. plans an average rate increase for wind-only policies of 58 percent, sparking an argument among top state officials on whether the increase is legal.

The Advocate reports that the large increase follows a May 23 meeting of the corporation’s board, which rejected state Treasurer John Kennedy’s proposal for an increase of 12 percent.

Kennedy says the new rate hike, set to take effect in June, is illegal. Insurance Commissioner Jim Donelon insists the rate is legal and necessary.

Citizens provides insurance coverage to homeowners and businesses unable to obtain it from private companies. Although the average rate hike is estimated at 58 percent, Kennedy says wind-only rates could go up 170 percent in St. Mary Parish and 217 percent in Cameron Parish.

The state law that set up Citizens says the insurer must charge 10 percent more than actuarially sound rates, or those that cover expected losses and expenses; or the market rate, the amount charged by private insurance companies that sell at least 2 percent of the policies in a given parish, Kennedy said. But at the time it calculated its new rates, Citizens was the only company selling wind-only policies in several parishes, so there was no market rate, he said.

Because of that, Citizens is required by law to use the actuarially sound rates, those that cover expected losses and expenses, Kennedy said.

Jim Napper, Kennedy’s representative on the board, said Citizens’ market rates were an assumed, extrapolated rate based on what a company would have charged if it sold wind-only policies and controlled 2 percent of the market.

Napper cited the wide variances in some parishes to illustrate the problem. He used a $100,000 house with $50,000 in contents as an example

In Jefferson Parish, the actuarially sound increase for that house is $133 a year, or 8 percent, while the market rate increase is $861, or 52 percent. In St. Mary Parish, the actuarial increase is $125, while the market rate increase is $1,990, or 171 percent — 16 times the actuarial increase. In Cameron Parish, the actuarial increase is $125, or 11 percent, and the market rate is $2,531, or 216 percent.

Donelon said he understands the pain property owners in coastal parishes are feeling, but Citizens’ new rates, which go into effect in June, are legal. He said Kennedy’s proposal for an average increase of 12 percent could lead to an economic catastrophe. The old rates were too low, and probably illegally so, which is why Citizens’ sales of wind policies increased 37 percent over the last two years, Donelon said.

Topics Carriers Louisiana