State Farm Homeowners' Rate Hike Request
Rejected by Louisiana Regulators
The Louisiana Department of Insurance has rejected a request by the
state's largest insurer, State Farm Fire and Casualty Co., to raise
rates an average of 14.3 percent for its 301,000 homeowners policyholders.
State Farm spokeswoman Molly Quirk said the company will continue to talk
to and work with Insurance Department staff. Asked whether the insurer will
seek a smaller rate increase, she said State Farm does not know what will
come from those conversations because the process has just begun.
Last year, a rate increase was requested, rejected and later approved at
a lower level.
The latest rate increase requested would have generated more than $55 million
for State Farm, according to Insurance Department records.
Insurance Commissioner Jim Donelon said Friday that State Farm had built
in too big of a profit, or capital build-up, in its filing.
Donelon said he also wanted to compare the catastrophe models State Farm
used in calculating its rates to a recently released RMS hurricane model.
The details of the filing, such as the built-in profit, remain confidential
until a filing is approved under state law, Donelon said,
so he could not discuss the amount of State Farm.s proposed profit.
Quirk said the company could not comment on the details of its filing.
Last year, the Insurance Department approved State Farm's request to increase
rates overall by 9.9 percent, generating $38.1 million. The increase was
effective June 15 for new business and Aug. 1 for policy renewals.
Last year, State Farm had originally requested a 19.1 percent increase, which
would have generated an additional $67.6 million, but Donelon rejected that
request, describing it as unreasonable. Among other things, State Farm justified
the increase using a hurricane model that projected losses 150 percent higher
than the other two models used in the filing. Donelon said the company didn't
adequately explain the difference.
According to RMS, its new model shows that the risk of wind damage will
increase for all hurricane states.
However, insurers whose policyholders are concentrated along the coast will
see the smallest increase in wind claims, and those losses may actually be lower
in some areas, according to RMS. Companies whose policies consist of inland
properties and commercial or industrial businesses will generally show the
largest increases in risk from wind damage, it shows.
Donelon said RMS is saying the new model shows that the risk of wind damage
is higher in Baton Rouge, Hattiesburg, Miss., and Ohio, where Hurricane Ivan
caused the worst losses in state history.
"I hope that it portends better things for coastal counties and parishes,"
The Advocate — Baton Rouge, La.
March 20, 2011
By Ted Griggs