"Extreme Premiums: Louisiana Insurance Rates"
Louisiana homeowners face the third highest insurance rates in the country.
Louisiana drivers pay the second highest auto insurance premiums in the nation.
Why are our rates so high and what, if anything, can be done to reduce them?
Homeowners Insurance
Based on the most current data from the National Association of Insurance Commissioners at
$1,155 per year, Louisiana had the third most expensive homeowners insurance in the country in
2008. The national average was $791.
Top Ten Most & Least Expensive States For Homeowners Insurance, 2008
Rank
1
2
3
4
5
Most expensive
states
Texas (3)
Florida (4)
Louisiana
Oklahoma
Massachusetts
Homeowners
Least expensive
Rank
average premium
states
$1,460
1
Idaho
1,390
2
Utah
1,155
3
Oregon
1,048
4
Washington
1,026
5
Wisconsin
Homeowners
average premium
$387
432
439
471
503
Source: 2010 National Association of Insurance Commissioners (NAIC).
How Are Rates Set? Up until 2007, Louisiana was the only state in which
insurance rates were set by a board appointed by the governor – the Insurance
Rating Commission. In other states, the market sets the rates. Having an elected
Commissioner of Insurance and an independent rating body resulted in conflict and
confusion. The Insurance Rating Commission was abolished by the Legislature in
2007. The “flex-band" law, which previously allowed insurers to increase rates up to 10 percent
each year without the Insurance Rating Commission's approval was also eliminated in 2007.
Since then, all rate increases have to be approved by the Insurance Department before going into
effect. Current Insurance Commissioner, Jim Donelon, recently told LPB, “It is a much better
system to take the politics out of the process and put the responsibility with the individual elected
by the people who are paying those higher rates.”
The Public Affairs Research Council has proposed in the past that the Insurance
Commissioner be an appointed rather than elected position, as a streamlining measure. Others
have argued that it could be a safeguard against corruption so that the commissioner is not
influenced, for example, by campaign contributions from the insurance industry.
Three Insurance Commissioners in a row have been sentenced to time in federal prison:
Sherman Bernard pleaded guilty to taking bribes disguised as campaign contributions and served
30 months. Doug Green is serving 25 years for accepting $2 million in illegal campaign
contributions from the owners of the Champion insurance company. Champion failed in June
1989, leaving about $180 million in unpaid claims in Louisiana. In the fall of 2000, former
Commissioner Jim Brown was convicted of lying to an FBI agent, and served six months.
Coverage history In the years following Hurricane Andrew, in 1992, the potential risk of
future storms and ensuing large assessments led insurers to pull back on the number of policies
they wrote in Louisiana. According to Gene Galligan, President of the Professional Insurance
Agents of Louisiana, by 2003 there were only 16 companies writing homeowners insurance in
the state. Louisiana Citizens Property Insurance Corporation was subsequently created by the
Legislature as a state-run insurer of last resort. By providing coverage to higher risk properties,
Citizens allowed the state to attract private insurers back to the marketplace. Citizens is funded
by premiums from Louisiana policyholders, and shortfalls are financed through surcharges on
Louisiana policyholders. To finance Citizen‟s deficit following Katrina, the state issued several
hundred million dollars in bonds, paid for by taxes on homeowner policies. To discourage
competitiveness, Citizens‟ rates are state-mandated to be 10% higher than private property
insurance companies.
Hurricane Katrina The largest insurance payout
event ever in the nation was Hurricane Katrina, which caused
nearly $25.4 billion in insured losses in Louisiana alone. Prior to
that, the largest loss in the state had been $500 billion in claims
due to a 2000 hail storm. Louisiana has a statute in place, which
says that if a policyholder has homeowners insurance from an
insurer for at least three consecutive years, the insurer cannot
cancel the policy unless they have had more than two non-actof-God events. The law is widely credited for stabilizing the
homeowners’ insurance market after Katrina by stopping
widespread cancellations by panicky insurers.
Legislative reforms While the three largest insurers in the state – State Farm, All State
and Travelers had their largest homeowners market share pre-Katrina in Louisiana, they’ve
reduced their exposure here as well as in all coastal states. But that vacuum, according to
Donelon, has been filled by Liberty Mutual, Republic and Farmers Group which have doubled
their writings cumulatively since 2005. “Since Katrina, our market has become more
competitive,“ Donelon also says, due to the addition of 12 new insurers.“The state sponsored
market of last resort, Citizens is smaller today as a percentage, than it was the day before
Katrina hit us in 2005 because of those dozen new to the state businesses.“
These new insurers were attracted to the state following legislative reforms in 2007. The
Coalition to Insure Louisiana, a broad-based advocacy group of more than 40 organizations,
joined together to change Louisiana's regulatory environment to encourage market entry and
underwriting activity. The coalition garnered support from the governor's office and the
department of insurance and passed substantive legislation: HB 678 that established a $100
million matching-grant incentive program; HB 960 that abolished the state rating commission in
favor of a file and use system; and HB 704, refining the new state building code.
Pricing Concerns Catastrophe modeling is a risk management tool that insurers use to
help insurers and reinsurers – those that cover insurance companies - better assess the potential
losses caused by natural and man-made catastrophes. Models have tremendous say in what
consumers and businesses pay for property insurance and how much coverage is available.
Unfortunately, a new crop of hurricane computer models that the insurance industry will use to
assess risk in the New Orleans area don’t take into account the $14.5 billion of flood protection
improvement work by the U.S. Army Corps of Engineers. Robert Hartwig with the Insurance
Information Institute (III) says, “Because most homes that are insured for flood are insured
through the National Flood Insurance Program, there‟s not a great deal of impact on the risk
profile of New Orleans homes.” Donelon disagrees and says the models don’t take into account
wind damage prevention since “every building built since Katrina was built to the new state of
the art, best in America building codes that we passed in the special session just after Katrina.”
Flood Insurance Standard homeowners policies typically do not cover flood damage.
Hurricane Katrina resulted in $13.1 billion in flood insurance losses in Louisiana paid by the
National Flood Insurance Program (NFIP). Overall, the NFIP incurred a deficit
exceeding $18 billion as a direct result of Katrina flooding even though the
majority of people in affected areas had not purchased flood insurance. The
number of flood insurance policies in force in Louisiana rose by 27%t from
388,121 in 2005 to 494,370 in 2006 following Katrina and Rita. But by 2010,
there were 481,497 in force down from 483,966 in 2009. A May 2010 III poll
found that in Louisiana and Mississippi, 32% of respondents think their
homeowners’ policy covers damage from flooding from a hurricane, double the 16 % in the U.S.
Similarly, 35% of people in those states who said they filed homeowners’ claims following
Hurricane Katrina continue to believe that flooding from a hurricane is covered.
Named Storm Deductible To limit an insurer’s exposure to loss from a hurricane,
insurance regulators in 18 states – including Louisiana- allow property insurance policies to
include hurricane, or “named storm” deductibles. Rather than a normal flat rate deductible, these
deductibles are tied to a percentage of a home’s insured value. In Louisiana they vary from 2%
up to 5%. But despite the housing bust of the last few years, these rates have not declined. Why
not? “The price of a home is based on the market value and the land upon which it sits.” III
spokesman Hartwig says, whereas “The price of homeowners‟ insurance is based on the cost to
repair or rebuild your home.” According to Donelon “Construction costs post Rita/Katrina,
roofing costs, sheetrock costs, carpet costs has gone up exponentially in Louisiana and other
coastal areas.” Recent legislation will somewhat soften the hurricane deductible blow - since
January 1, 2010, insurers in Louisiana can charge no more than one named-storm deductible per
hurricane season.
Automobile Insurance
Louisiana’s auto insurance premiums rank 2nd in the nation according to
an Insure.com March 2011 survey. Insure.com’s study collected auto insurance
rates from six large carriers for more than 2,400 vehicles, based on ten zip codes
per state. Louisiana’s annual average auto insurance premium is $2,453 per
year. The lowest state, Vermont, had rates of $995 per year.
Part of the reason for our higher rates, Insurance Commissioner Donelon
notes, is that the loss of 150,000 vehicles from Katrina and Rita are just now showing up in our
rate filings. Donelon also says that Louisiana’s very competitive auto insurance market has kept
our rates flat for “the last 5 plus years” while other states, like New Jersey and New York,
which are traditionally higher than us, have seen their rates decline from aggressive marketing by
the auto insurance industry. “We passed them up,” Donelon says, “even without rate increases
over the last 5 years.”
Litigation
“One of the reasons our auto insurance rates are high,” says Monroe
insurance agent Gene Galligan, “is we‟re rated as having the second worst legal climate in the
country.“ Galligan, who is also is president of the Professional Insurance Agents of Louisiana,
cites a 2010 Chamber of Commerce survey that asked senior attorneys to rank states on their
overall treatment of tort, contract, and class-action litigation. Louisiana ranked second behind
West Virginia. Galligan feels that lawyers’ commercials fuel a lawsuit mentality. “You have so
many ads on TV for lawyers,” Galligan says, “People see them then say „the insurance
company‟s not going to take care of me, I better get an attorney.‟” Donelon agrees that litigation
is one of the major causes for our extraordinarily high rates. He notes that while 25% of Southern
Farm Bureau’s policies are in Louisiana; 50% of their current litigation is in the state.
Baton Rouge attorney Darrel Papillion places the blame for the large number of lawsuits on
Louisiana’s short statute of limitations. Individuals have one year from an incident that causes
injury to file a lawsuit or lose their rights. “People would not necessarily need to bring lawsuits,”
Papillion says, “if, among other things, they had a longer period of time to resolve their disputes
with the insurance companies.” Papillion also feels that insurance companies often bring lawsuits
upon themselves by not offering fair compensation to individuals, thereby, “forcing people to hire
lawyers.”Papillion points to Louisiana speeders and a culture of drinking and driving as factors
contributing to the state’s high auto insurance rates. A recent Allstate report ranks Shreveport,
New Orleans and Baton Rouge as the 106th , 148th and 151st safest driving cities respectively out
of America’s 200 largest.
In Louisiana, to get a trial before a jury your claim must be more than $50,000. Many suits
filed as a result of automobile accidents are less than $50,000, so these cases are
decided by elected judges. Observers say some of these elected judges may be
more inclined to side with their constituency rather than insurers. Melissa
Landry, executive director of Louisiana Lawsuit Abuse Watch, says “We
need to get rid of Louisiana‟s $50,000 threshold and give everyone the right to choose a trial
before a jury to help ensure that lawsuits can be settled based on their merits.” Insurance
companies would rather settle, Landry says, than cast their lot before a judge they fear might not
rule fairly, even if they believe the client is not at fault. The Louisiana District Judges Association
opposes lowering the $50k law because it would clog up an already overburdened court system as
well as increase costs.
Under/Uninsured Motorists Despite laws in nearly every state requiring auto
insurance, USA Today notes that one in seven drivers in the USA goes uncovered. In Louisiana,
Donelon says 12% of drivers are uninsured. Uninsured motorists face suspension of registration
and license plates as well as fines and administrative fees. An uninsured vehicle can be
impounded by any law enforcement officer. Not having insurance can also get you in trouble if
you are in an accident, even if you are not at fault. According to Louisiana law, the other driver
is not required to pay you the first $15,000 of damages resulting in bodily injury or the first
$25,000 of property damages if you do not have insurance. Insured drivers pay a hefty price for
fellow motorists who have no policies - $10.8 billion in 2007, according to the most recent data
from the National Association of Insurance Commissioners.
But equally harmful to our market, Donelon says, is the 40% of Louisiana drivers who carry
only the minimum limits, required by law. Under Louisiana law, each vehicle is required to have
at the minimum, 15/30/25 liability limits. Those limits provide payments of $15,000 for bodily
injury to one person, $30,000 for bodily injury to more than one person in a single accident, and
$25,000 coverage for damage to someone else’s vehicle or other property.
“So the rest of us who are driving on the road with that 40% plus 12% or 52%; the majority
of our drivers,” Donelon says, “have to buy uninsured and underinsured coverage with our
policy to protect ourselves from their negligence; driving up the costs of the 48% of the
population who has higher than minimum limits in place.”
Other Factors
- Car theft
The New Orleans CityBusiness notes, “One factor in favor of lower rates is that
car theft rates have fallen across the state. According to the 2009 FBI Uniform Crime Report,
there were 2,612 vehicles stolen in New Orleans compared with 3,208 in 2008. Drops were also
reported in Baton Rouge, Lafayette and Shreveport.”•
- Quality of our roads
According to the Road Information Program, a
national transportation research group, Louisiana has a $12.5 billion transportation
funding shortfall at a time when almost half the state’s roads are deteriorated, a
quarter of its bridges need repairs and traffic congestion remains a problem in urban areas.
- Unemployment
Donelon notes as unemployment tracks so do claims and litigation and
“therefore costs of coverage for those drivers.” Only 4 parishes are above the statewide
insurance premium average by more than 5%: Orleans - 40% higher; Bernard – 30% higher;
Jefferson - 19% higher and Plaquemines - 15% higher. Donelon says, “I think that‟s a result of
there being a higher concentration of low income folks in those four parishes.”
CONCLUSiON
Louisiana high property insurance rates are not only impacting current citizens but the
state’s ability to attract new residents. Michael Olivier, former secretary of Louisiana Economic
Development, says that insurance costs are part of the “landscape of business costs” that is
considered when a company chooses to locate to a state. “Now, they also consider not only from
the business cost side,” he says, “but what does it costs for our employees?” Olivier, who
currently heads the Committee of 100 for Economic Development, notes that despite Louisiana,
being blessed with some costs that are not extraordinarily high as it relates to housing,
Louisiana’s higher homeowners and auto insurance rates have “made us less competitive with
some other states than we normally compete with. “
New Iberia businessman Tim Borel moved back to Louisiana from Texas in 2005. He
saw his auto insurance rates double and his homeowner’s insurance triple. Borel says had he
known his insurance rates would have increased as much as they have, he would have
reconsidered returning home. “If I‟d had known it would have been so expensive to move back,”
Borel says, “I wouldn‟t have moved back. We were happy where we were; had good insurance; it
was a nice place to be.”
And the state’s higher insurance rates even have some contemplating a move upon
retirement. Paul L., a former Tallahassee resident who moved to Louisiana in 1992 to take a job
at LSU, recently commented on the “Louisiana Public Square” website, “To me this is not a
trivial issue as I am facing retirement and will be living on a greatly reduced income. By moving
back to Florida my insurance costs would be reduced by two-thirds and I would not have to pay
a state income tax. This is an issue that Louisiana State legislators must take seriously.”
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Watch “Extreme Premiums: Louisiana Insurance Rates”
Wednesday, September 28,, 2011
at 7 p.m. on LPB HD.
Let us know your experience with
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