Louisiana homeowners insurance is nation’s third-most-expensive, study says
on January 03, 2010 at 6:35 AM
Louisiana remains the third most expensive homeowners insurance market in the nation behind Florida and Texas, according to newly released data from the National Association of Insurance Commissioners.
The average premium in Louisiana for a standard homeowners policy in 2007, the most recent year for which data are available, was $1,400, up from $1,257 in 2006. That 11.4 percent jump was the largest increase in homeowners insurance in the nation.
Insurance Commissioner Jim Donelon said he wasn’t surprised by the data because 2007 was when the brunt of the rate increases after Hurricanes Katrina and Rita kicked in. After the storms, many insurers also increased the insured value of homes on people’s policies.
Donelon believes the 2008 figures will show improvement because that’s when the insurance department’s signature reform, a program to give insurers multimillion-dollar grants to do business in Louisiana, began. “I’m hopeful that next year we’ll see a decrease,” Donelon said.
As part of that program, several new insurers came to the state and took policies out of Louisiana Citizens Property Insurance Corp., which by law sells the most expensive insurance in the state. When these companies began selling policies directly to the public, they did so at rates that were lower than what many existing carriers were charging.
By the Louisiana Department of Insurance’s calculations, statewide average homeowners rates increased by 3.5 percent in 2007 and 2008, and 4.5 percent in 2009. Donelon said those numbers mean that no surprises lie ahead. “We have certainly stabilized,” he said.
While the numbers may not be as shocking going forward, it will be difficult for Louisiana to drop below No. 3 in the rankings because the next group of states have premiums that are more than $300 lower than in Louisiana. The next entity on the list, for example, is the District of Columbia, with an average premium of $1,089, followed by Oklahoma at $1,054. Mississippi and coastal states in the Northeast with high real estate values round out the list of the most expensive states.
In reality, policyholders in the New Orleans area pay much more than the figures from the insurance commissioners association or the state insurance department reflect because of the risk of hurricanes. The figures also do not reflect the cost of flood insurance, which is sold as separate policy.
Florida overtook Texas as the nation’s most expensive homeowners market in 2007, with premiums increasing by 10.7 percent to an average of $1,534. Actual figures are probably higher because the Florida numbers exclude policies from Florida Citizens Property Insurance Corp., the state’s largest insurer, which, by law, charges prices at the top of the market. Meanwhile, private homeowners policies that don’t include wind coverage are lumped in with those that do, skewing the results downward.
In Texas, the average homeowners policy sold for $1,448 in 2007, a 2.8 percent increase from the previous year. The NAIC cautions against comparing Texas to any other market because the standard homeowners policy in Texas is slightly different from policies in other states.
Texas, Florida and Louisiana are the nation’s most hurricane-prone states. But Louisiana’s position near the top of the list is remarkable because it’s a poor, rural state with few fancy coastal vacation property or large expensive homes.
Premium figures reflect not only rates, but real estate values, the cost of rebuilding, the type of construction and location.
Bob Hunter, director of insurance at the Consumer Federation of America, said the average premium in Louisiana is 70 percent higher than in the nation as a whole, which suggests that insurers are charging whatever the market will bear because there’s no threat of losing customers to a competitor.
“It’s not a competitive market, it tells us that much,” said Hunter, who is originally from New Orleans. “If I’m insuring you, I can basically charge whatever I want because no one’s going to take you from me as a customer.”
He believes that the state insurance department needs to take a closer look at the computer hurricane models that companies use to justify rates.