Insurance rates rising on June 1 - Daily Comet

<p>HOUMA — Homeowners in Terrebonne and Lafourche parishes will see the cost of their state-sponsored wind and hail property insurance policies skyrocket after the Citizens Property Insurance Corp.'s board approved major hikes at a meeting Wednesday.</p><p>Terrebonne will see an annual rate increase of 52 percent, increasing the average policy cost from $1,600 to $2,500.</p><p>Lafourche will see a cost increase of 47 percent, increasing the cost of an average policy from $1,600 to $2,400. </p><p>St. Mary Parish will see an increase of 170 percent, increasing the average policy cost from $1,200 to $3,200. The rate hikes will take effect on June 1.</p><p>Citizens acts as an insurer of last resort in communities where no other home insurance is available.</p><p>State Treasurer John Kennedy spoke at a meeting of the Houma-Terrebonne Rotary Club Thursday to decry the rate hikes for coastal parishes, which he believes are illegal. Kennedy is a member of the Citizens Property Insurance Corp. board of directors.</p><p>"Our people are fighting every day to recover from major hurricanes and a devastating oil spill," Kennedy said "Many private insurance companies have already abandoned these parishes, and now the government corporation that was set up to be the 'insurer of last resort' is setting rates so high that people can't afford to purchase the insurance. That will ensure that homeowners in these parishes will have no resort when it comes to obtaining affordable wind and hail coverage."</p><p>State Insurance Commissioner Jim Donelon said Thursday he understands the stress residents feel when their insurance policies go up significantly in cost, but Citizens is required to raise its prices every year and keep them higher than the private market. If Citizens insurance costs were to be kept artificially low, it could cause residents to flood the state-sponsored insurance program and would make the state liable for billions in insurance claims.</p><p>"I really am pained to see everyone experiencing dramatic increases, but to put the state in the insurance business would be fiscally irresponsible," Donelon said.</p><p>The state law that established Citizens says the insurance company must charge either 10 percent more than the actuarial rate, which is set to cover home expenses and possible losses, or the market rate charged by private insurance companies.</p><p>Citizens has charged actuarial rates in the past because there were no other insurers offering wind and hail coverage in many coastal parishes to establish a market rate.</p><p>But this year, Citizens looked at the policies major insurance companies were writing in parishes and took out the rates they charge for wind and hail coverage. They used those numbers to set a market rate in areas where those separate policies weren't being written by private companies.</p><p>Kennedy objected to that move, arguing it wasn't really a market rate because no one was writing wind and hail policies.</p><p>"These rates are illegal. Pure and simple," Kennedy said. "The law clearly states that these rates should either be determined by actuarial value or market value. Since the private insurance industry refuses to service these parishes, there is no market value. Citizens must, therefore, base its rates on actuarial value, as it has always done, instead of assuming or extrapolating a fictional market value that leads to much higher rates."</p><p>The Citizens board voted to ask the state attorney general to decide on whether the new rates are legal. Rates will still go up June 1, Donelon said, and if the attorney general decides they were wrongly raised, residents will receive a refund.</p><p>Donelon pointed to Florida as an example of what can happen when a state lowers insurance rates below the market rate.</p><p>After state insurance rates were lowered by 25 percent, residents overwhelmingly switched to the state-sponsored plan, leaving Florida on the hook for billions.</p><p>A move like that could be a financial disaster for Louisiana, he said.</p><p>"We would put ourselves at risk for way more than the $18 billion" that the state retirement system owes retirees but can't afford to pay, Donelon said.</p><p>Nikki Buskey can be reached at 857-2205 or nicole.buskey@houmatoday.com.</p>