Significant rate increases for state-sponsored wind and hail property insurance policies that Citizens Property Insurance Corp. approved earlier this year were legal, according to an opinion by the state’s attorney general.
Attorney General James “Buddy” Caldwell issued an opinion on rate increases that brought the cost of insurance up more than 100 percent in some coastal parishes. State Treasurer John Kennedy had attacked the rate increases, saying he believed they were illegal.
At issue was the state law that established Citizens, which says the insurance company must charge either 10 percent more than the actuarial rate, which is set to cover home expenses and possible losses, or the market rate charged by private insurance companies.
“We felt confident all along that what we were doing met the requirements of the law,” said Insurance Commissioner Jim Donelon. “We must prevent Citizens from becoming the market of choice instead of the market of last resort as it’s supposed to be.”
Without raising rates, Donelon said one overnight “Katrina-like” event could have the state facing an unfunded liability of billions of dollars.
Citizens has charged actuarial rates in the past because there were no other insurers offering wind and hail coverage in many coastal parishes to establish a market rate.
But this year, Citizens looked at the policies major insurance companies were writing in parishes and took out the rates they charge for wind and hail coverage. They used those numbers to set a market rate in areas where those separate policies weren’t being written by private companies.
Kennedy challenged that move, arguing it wasn’t really a market rate because no one was writing wind and hail policies.
But the attorney general’s opinion states that Citizens may consider wind and hail portions of policies when setting rates as long as they were issued by qualified insurers in the parish in question.
Kennedy said he still disagrees with the decision and will continue to fight it.
Kennedy added he understands Donelon wants to keep Citizens as an insurer of last resort and limit the state’s liability, “but the only thing worse is for our folks to not have any insurance.”
Under the rate hikes implemented in June, Terrebonne residents had an annual rate increase for wind and hail policies of 52 percent, increasing the average policy cost from $1,600 to $2,500.
Lafourche had a rate increase of 47 percent, increasing the cost of an average policy from $1,600 to $2,400. St. Mary Parish had an increase of 170 percent, increasing the average policy cost from $1,200 to $3,200.
Donelon argued that in recent years Citizens has had a dramatic reduction in policies even in coastal parishes below Interstate 10 with private companies taking on more policies.
“Even if (Kennedy) was correct and we didn’t have the ability to get folks to write insurance in coastal areas, that calls for a social program, not an insurance program that would put the state on the line for billions in insurance that it couldn’t pay,” Donelon said.
Government-sponsored insurance programs put taxpayers at a risk that they may not be aware of, he added.