Cost of homeowners policies in south La. to jump in 2007

BATON ROUGE -- Farmers Insurance Exchange, the state's fifth-largest provider of homeowners insurance, won a 33.4 percent statewide average rate increase Wednesday on a 4-1 vote from the Louisiana Insurance Rating Commission.

Customers in the northern third of the state could see decreases of as much as 30 percent, while homeowners in most parts of the New Orleans area could see rates rise by 50 percent to 119 percent.

The move will affect 28,736 policyholders statewide and will raise an additional $11 million in annual premiums for the Los Angeles company. The changes take effect Jan. 16.

Farmers, a division of Zurich North America, pitched the rate increase as a way to position itself to continue growing in Louisiana. The company began doing business in the state in 2000 and this year alone has grown by 26 percent.

"We are writing business in the state and this proposal will allow us to continue writing in the state," said Rakesh Mishara, vice president of product management.

However, the company is not writing homeowners insurance policies within 30 miles of the coast -- including in the New Orleans area. The company shut down its underwriting in the area on March 1.

The 33.4 percent rate increase is also a way for the company to pick up disaffected customers as other large companies such as State Farm, Allstate and Farm Bureau increase deductibles and drop wind coverage or refuse to write new policies with it.

Farmers noted that unlike its competitors, it was not changing its hurricane deductibles, which are 2 percent in the southernmost zone of the state and 1 percent in the next most southerly zone, and that it was continuing to include wind coverage on new policies. "We are not proposing any reduction in coverage," Mishara said.

The rate increase is a reversal from earlier in the year, when Farmers got a 4.7 percent decrease in February under the state's flex-band rating system, which allows companies to make modest rate changes without going before the commission as long as they can prove the changes are justified. Farmers could not explain the reversal.

The Farmers rate increase is supported by the new computer models that demonstrate greater hurricane risk by more heavily weighting recent storm experience, Louisiana Chief Actuary Rich Piazza said.

Christine Berry, a rating commission member from Monroe, moved to approve the rate increase because it would help Farmers continue writing business in the state. She asked the company to consider decreasing rates after it rebuilds its reserves.

But the approval didn't go down without a fight. Commissioner Steven "Rock" Ruiz of Mandeville said he had unanswered questions on Farmers' reinsurance coverage and noted that the computer models were wrong about hurricanes this season. Ruiz, who is originally from Algiers, also questioned why the company put Gretna and Algiers in different zones that would result in different insurance premiums even though the two communities are next door to each other. Coverage would be less expensive in Gretna.

"We didn't have a hurricane this year, so there's a flaw in the modeling. Everybody made money in 2006. Every homeowners company made money in 2006," Ruiz said. "I want to know why there's such a difference between Gretna and Algiers."

Julie Fusilier, a lobbyist for Farmers and the wife of former Insurance Commissioner Robert Wooley, jumped to the microphone. Louisiana's coastline meanders in and out, she said, and one community could be closer to the water than another as the crow flies, making one place more risky than another. "It is a unique situation for Louisiana, unfortunately," she said.

But Ruiz held his ground and voted against the increase. It passed 4-1.

The Chubb Group of Insurance Cos. also won a statewide average increase of 18.5 percent for its brands Federal Insurance Co., Pacific Indemnity Co., Vigilant Insurance Co. and Great Northern Insurance Co. The changes will affect 3,132 policyholders. The company will allow customers to reduce their wind or hail deductibles or get credit on their bills by installing hurricane shutters.

Another company, Merastar, won a 19 percent rate increase for its 32 customers in the state.

Meanwhile, the commission was upset that Aegis Security Insurance Co. has not resumed writing new business as the company said it would when it won a 30-percent rate increase in August. The Louisiana Department of Insurance said the company had some leadership changes after the increase and no longer planned to resume writing new policies in Louisiana immediately.

The department said little could be done other than to monitor the situation, but commission members were unsatisfied. Jabari Ragas, a commission member from New Orleans, said it was fishy that the company had a change in philosophy immediately after winning a substantial rate increase.

"They got a rate increase based on assurances that they would write new policies and how they say they're not going to write new policies, and there's nothing we can do about it?"

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By Rebecca Mowbray
Business writer

Rebecca Mowbray can be reached at rmowbray@timespicayune.com or (504) 826-3417.

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