LA homeowners insurance rates rising more slowly

NEW ORLEANS (AP) - Homeowners insurance premiums in Louisiana remain among the nation's highest, but are rising much more slowly than they did in the first two years after Hurricane Katrina, new data from by the National Association of Insurance Commissioners show.

Louisiana remains the third-most expensive market in the nation for homeowners insurance, behind Texas and Florida, The Times-Picayune reported.

The statewide average premium was $1,430 in 2009, the most recent year for which data is available. The average rose 9.9 percent in 2006 and 11.4 percent in 2007 - but only 0.35 percent in 2008 and 1.78 percent in 2009. The 2007 increase was the nation's largest, and that in 2006 was the third-largest in the country.

Louisiana Insurance Commissioner Jim Donelon said the moderate premium increases reflected in the NAIC data are consistent with the stabilization that he has seen in the homeowners market. "I am encouraged, and not surprised," he said.

Donelon credits new competition with taming the runaway rate increases immediately after the storm. About a dozen companies have become active players since the storm, some of them new companies that came here with the $29 million in incentives awarded by the state, some startups or new players that came here on their own, and some longtime players such as Liberty Mutual or the Republic Group that greatly increased their policy-writing over the past six years.

While those new players have not succeeded in bringing down rates, Donelon said his market strategies have been successful. "The best regulator of cost is competition," he said.

Based on information at the Louisiana Department of Insurance that ultimately will be analyzed by the insurance commissioners group, Donelon said figures for 2010 and 2011 will also show moderate rate increases. Most of the increase came from State Farm, which took statewide average rate hikes of 8 percent to 9 percent in each of the past three years. State Farm controls about 30 percent of the state's insurance market.

But after 2011, Donelon said, homeowners insurance rates could resume rising because of the influence of a new batch of computer catastrophe models such as RMS 11.

Insurance companies use computer models to analyze their portfolios of homes to assess risk, and newer models often predict greater hurricane activity, more intense storms and tropical storm-force winds traveling further inland than in the past. When models show more risk, companies drop policies, reduce coverage, increase deductibles, raise rates or do some combination of all of them to make sure they have enough money to cover the risk.

Indeed, Donelon said the insurer of his home in Metairie, one of the new companies that started doing business in Louisiana, recently informed him that it would drop his policy based on reviews from the new catastrophe models.

Without minimizing the financial pain that the high cost of insurance causes many people, Jeff Albright, chief executive of the Independent Insurance Agents and Brokers of Louisiana, said it's significant that the increases have been small in the past two years, especially considering that Louisiana was hit with Hurricanes Gustav and Ike in 2008.

"Yes, it went up, but a lot of things went up a whole lot more than 2 percent," Albright said. He said bringing in new companies hasn't cut prices, but has kept increases down. "We thought the prices would go up more than they did after Gustav and Ike."

However, Bob Hunter, director of insurance at the Consumer Federation of America, said that while competition can do wonders for rates in a stable market, after a storm, when insurers are eager to raise rates and drop coverage, strong regulation makes a bigger difference in keeping rates moderate.

Hunter suspects that companies use storms to gouge people. Hurricane Katrina may have been the largest insurance event in history, but if one looks at the financial impact that it had on the insurance industry nationally, it's much less significant than the impact of Hurricane Andrew in 1992 - a much smaller event by insured losses.

With each disaster since Andrew, insurers have increased deductibles, trimmed coverage and dropped policies, all of which foist risk back on policyholders - and, through disaster aid, taxpayers - yet they have continued raising rates. The result is that insurers are better financed and shoulder less risk, so even a big event like Katrina didn't rock the industry.

"They have basically eliminated their risk," Hunter said. "Why haven't these things worked to bring rates down? Are they just gouging? "It really requires regulation," he said.

(Copyright 2012 by The Associated Press. All Rights Reserved.)