Louisiana Farm Bureau Gets +49% Rate Hike Approved

The Louisiana Insurance Rating Commission unanimously approved a 49 percent rate increase for the Farm Bureau Insurance Companies, the state’s fourth-largest homeowners insurance group, on Wednesday.[...]

The Farm Bureau rate increase — plus a 19 percent increase approved Wednesday for Fireman’s Fund Insurance Co. entities and a 5.2 percent increase for the American Association of Insurance Services — are signs of times to come as homeowners insurance companies rethink their tolerance for hurricane damage in a new period of intense storm activity.[...]

But consumer advocates cried foul. Bob Hunter, director of insurance for the Consumer Federation of America, said the insurance models created after Hurricane Andrew were supposed to eliminate these types of rate swings, and it’s especially hard to explain a 49 percent rate increase when wind is being excluded from the most vulnerable areas.

“It’s absurd. I don’t know how they justify that kind of a change when they’re using hurricane models,” said Hunter, a New Orleans native and a former insurance commissioner in Texas. “This is a huge turning back of the risk to the policyholders.”

I’m actually impressed that this got through the LIRC. The article mentions that the Farm Bureau saw a ratings downgrade. That indication of capital constraints, combined with what I imagine their reinsurance costs look like, could easily explain much of the hike.

To Bob Hunter’s point, I should point out that although cat modeling has become common practice within property insurance, not every carrier has been using the models in their pricing, usually due to the trickle-down effect from regulatory concerns, or due to marketing pressures (”if we raise rates that much, we won’t write any business!”).

I think a more constructive exercise for a consumer advocate, and something that the industry should be undertaking on its own, is a review of cat management philosophy and some reconsideration of how much it costs to bear risk. While I have no doubt that many insurers had forgotten the lessons of Hugo and Andrew, and needed a refresher course in the form of Katrina, Rita, and Wilma… I fear the past six months have seen more reaction than thoughtful action.