Posted: Jan 13, 2012 9:09 AM by ALAN SAYRE
Louisiana Citizens Property Insurance Corp. is supposed to be the state's insurer of last resort - via high rates - for homeowners and businesses that can't get coverage in the private market.
But some consumers have found a way to cut their bills by turning to Citizens voluntarily for part of their coverage.
If Citizens has its way, that price advantage will soon end through a proposed rate increase of 58 percent for 35,000 storm-only policy holders that the company's board approved. Insurance Commissioner Jim Donelon will have to approve the plan.
The issue is wind-and-hail coverage that protects property owners from tropical storms and hurricanes, a separate part of all property policies - and a pricey one with a high deductible. In some cases, consumers have to seek out Citizens when a private insurer agrees to protect them from such hazards and fire and liability, but refuses to write storm coverage.
Citizens' chief financial officer, Steve Cottrell, said Thursday that some consumers have figured out they can save money by getting their main coverage from a company such as Allstate or State Farm - and turning to Citizens for cheaper storm coverage.
That's not how it's supposed to work, he said. Cottrell said the increase is designed to drive those who can get storm coverage from their private insurer to do so. The plan is part of an overall 10.5 percent rate increase plan.
Citizens is required by law to charge rates 10 percent higher than the most-expensive private insurer in each area of Louisiana and not compete with the private market.
Over the past few months, the insurance industry has complained of price undercutting, which is barred by law, Cottrell said. While the number of overall Citizens policy holders has fallen by 8 percent over the past year - through placement with private insurers - the number of storm-only customers jumped 18 percent, he said.
For those who get all of their coverage from Citizens, Cottrell said the increase would average out at about 2.4 percent, or $35 per year. Typically, specific rate increases will vary through different parts of the state. During the wide variance in the storm coverage prices, he said he could not estimate how much the increase in that protection would be.
How did Citizens' storm-only rates get out of kilter with the private market? Cottrell said that since no private insurer in Louisiana writes storm-only coverage - including or excluding it from overall coverage - it was difficult to compare rates using Citizens' standard method. Now, the company has basically averaged out the savings from those voluntarily seeking storm-only coverage from Citizens and seeks to negate it through higher rates, he said.
"Louisiana wants us to truly be the market of last resort," Cottrell said, describing the rate increase as "plugging a leak in the system."
Citizens insures about 105,000 homeowners and 5,500 businesses, including storm-only coverage.