The Insurance Journal reported yesterday that Louisiana’s largest residential insurer, State Farm Fire and Casualty Co., has been approved for an average 9.9 percent rate increase for homeowners’ coverage in that state, with coastal areas vulnerable to hurricanes seeing most of the increase.
Jim Donelon, state insurance commissioner, approved the increase roughly two months after rejecting the insurer’s request for an average 19.1 percent rate increase. Donelon had called that proposal both unreasonable and unjustified.
State Farm explained that it needs higher rates in order to have adequate reserves in place for future storms. The current increase is based partly on past losses, like the four major hurricanes that have hit Louisiana since 2005, and also takes into account the projection of future losses. Last year, it asked for an average increase of 13.7 percent, and received an 8.3 percent increase.
According to State Farm, the New Orleans region will see a 17.7 percent increase, while rates in the Lake Charles region will go up 22.5 percent. Homeowners in Alexandria should expect an increase of 5.5 percent, while rates in Monroe and Baton Rouge will be unchanged and in Shreveport-Bossier City, rates will actually go down about 6 percent.
The largest overall decrease (6.7 percent) will be seen by homeowners in Assumption, Iberia, St. Charles and Vermilion parishes, while the residents of St. James and St. John the Baptist parishes will see the largest increase: a whopping 26 percent.
When he denied State Farm’s earlier request, Donelon questioned the insurer’s use of a loss projection model that called for loss provisions that were 150% higher than those projected by two other industry models, without enough evidence to support the difference. The request just approved did not use the challenged model.
The filing totals $38.1 million for State Farm’s 301,000 policyholders, and will go into effect immediately for new policies, and on July 1 for renewals.