South Central Homeowners Market Update

Judging from the homeowners insurance rate changes reported by the Arkansas Insurance Department for 2004, the highest increases were effective before August.

The largest hike, 28.3 percent, was filed by Federal Insurance Company; the effective date was July 7, 2004. Cincinnati Insurance Company filed a 26.46 percent rate increase to take effect May 1, 2004, but also filed a –8.42 rate change, effective June 1.

There were 15 filings for rate increases of 10 percent or more. Some of those were made by companies that filed for rate increases twice during 2004. For instance, Columbia Mutual filed a 16.1 percent rate increase with an eVective date of March 1, 2004. It later filed a 16.1 percent rate increase with an eVective date of Nov. 1. Columbia National filed a rate increase of 16.5 percent eVective March 1, 2004, but subsequently filed a decrease of –2.7 percent eVective Dec. 15 for new business and Jan. 15, 2005, for renewals. Four companies filed for rate decreases.

The rate change information can be found in the AID Quarterly Newsletter, which is available via the department’s Web site at www.state.ar.us/insurance/index.html.

Flexible insurance rating, hurricanes and a marketing campaign. These were the factors that most in¾uenced the homeowners insurance market in Louisiana during the past year.

The Louisiana Department of Insurance reported in early March 2005 that under the ¾exible rating system that went into eVect Jan. 1, 2004, the state saw more than $38 million in savings in the form of rate decreases throughout all property and casualty lines during the year. By comparison, rate changes approved by the Louisiana Insurance Rating Commission during 2004 and through February 2005 amounted to about $6.5 million.

Flexible rating allows insurers to amend rates as many times as necessary in a 12-month period within the -10 percent to +10 percent ¾ex band. LIRC continues to hear rate requests in excess of 10 percent, or those considered to be not actuarially justified by the department.

Companies have not been asking for the maximum 10 percent rate increase under the ¾ex system, according to Commissioner of Insurance Robert Wooley, who commented that ¾ex band filings are not being automatically “rubber stamped” by the department. He attributed the rate decreases to competition among companies. In 2002, the LIRC approved $1,973,984 in rate decreases. That number grew to $2,304,474 in 2003.

Wooley and representatives from the state’s two largest agents’ associations, the Professional Insurance Agents of Louisiana and the Independent Insurance Agents and Brokers of Louisiana, spent much of last year marketing improvements to the state’s legal and regulatory environment–including the ¾ex band rating system–to insurance carriers, many of which were wary of doing business in Louisiana. In December, Wooley told Insurance Journal that some 19 homeowners carriers had either received new certificates of authority to write homeowners, had agreed to expand their homeowners writings, have re-entered the homeowners market or were in the process of obtaining COAs to write homeowners insurance in Louisiana. He also said in 2004 the state had its first decrease in the total number of policies in its high-risk pool since 1994, from about 135,000 policies to around 128,000.

Hurricanes, or the threat of them, significantly in¾uence the homeowners market in Louisiana, especially in the southern areas of the state. Yet, the four hurricanes that swung through Florida and other southeastern states in August and September 2004 had minimal impact in Louisiana, relatively speaking. State officials ordered an evacuation of New Orleans in advance of Hurricane Ivan, but in November the LDI reported an estimate of just under $8 million in damages from Ivan. That estimate was based on a reported 3,760 claims paid following a survey of the major insurance carriers in the state. Ivan caused billions of dollars in damages in the coastal regions of Mississippi, Alabama and Florida.

Wooley likes to remind insurers that unlike other coastal states Louisiana has never been hit with billions of dollars in insured damages from a hurricane. Hurricane Andrew in 1992 caused $500 million in insured damages in Louisiana, but many times that amount in Florida and other Southeast states.

“In my frequent meetings with insurance company executives, I use Hurricane Ivan as a prime example of why Louisiana is a good place for insurers to do business,” Commissioner Wooley said, in announcing the damages from Ivan. “Unlike our neighboring coastal states with millions of dollars worth of beach-front residential and commercial developments, Louisiana has about 80 miles of marsh before you reach a highly populated area. So we have a cushion that other coastal states don’t have when a hurricane strikes.”

In December 2004, the Louisiana Citizens Property Insurance Corporation, a nonprofit corporation that replaced the state’s FAIR and Coastal Plans, announced that LIRC had approved substantial rate increases for the Louisiana Citizens FAIR and Coastal Plans. Citizens, the state’s property insurer of last resort, is required to charge rates that don’t compete with the commercial market–at least 10 percent more than the most expensive of a parish’s top 10 private insurers.

The approved rate changes are applicable to all new business policies effective Jan. 1, 2005, and all renewal business policies effective March 1, 2005. The approved revisions to the rates resulted in an overall increase of +24.6 percent for the FAIR Plan and +52.4 percent for the Coastal Plan. The increase on a statewide basis is +26.9 percent. Details of Louisiana Citizens’ rate changes broken down by product line and parish can be found on the company’s Web site at www.lacitizens.com.

Homeowners rates in 2004 remained relatively ¾at to slightly higher in Oklahoma, according to data filed with the Oklahoma Department of Insurance showing rate changes made by or approved for homeowners carriers in that state. Oklahoma went from a prior approval rating system to use and file on Nov. 1, 2004. Although some carriers reported double-digit rate increases, most kept their increases in the single digits, while a few carriers lowered their rates.

The highest rate increase–24.45 percent–was reported by the Armed Forces Insurance Exchange. Nine other carriers increased rates by 10 percent or more. Insurance Services Office filed a -17.2 percent decrease, but its member companies can choose to reject that rate change. Eight carriers lowered rates, with the biggest decrease being -6.2 percent, recorded by Central Mutual Insurance Company.

While Oklahoma has its share of weather-related claims that affect property rates–namely wind, hail and ice–its homeowners market has traditionally been a lot more stable than that of its neighbor to the south. Texas’ market reeled from the mold crisis a few years ago, but Oklahoma remained comparatively unscathed by the mold situation. The hardening of the insurance market and the stock market plunge that occurred around the same time, however, did affect Oklahoma’s rates along with those of the rest of the country–in all lines of insurance. According to an insurance department spokesperson, there were dramatic increases in the homeowners market in Oklahoma in 2002 — 2003. Some carriers asked for and got 30 percent rate increases, he said, whereas previously the rating board had drawn the line at rate hikes of around 25 percent.

At least one bill filed during the state’s 2005 legislative session could directly affect the homeowners market. Senate Bill 402 by Sen. Mary Easley would ensure that Oklahoma homeowners do not receive a cancellation notice of their insurance after filing a claim. According to Easley, under SB 402 insurers would be prevented from canceling, refusing to renew or increasing the premium of a homeowner’s insurance policy that has been in effect for more than 45 days if a first or second claim has been filed. The bill also states that cancellation, refusal of service or an increase in premiums cannot be allowed because a third or subsequent claim has been filed against any policy and it has been at least five years since the last claim was filed.

The operative word for the Texas homeowners market in 2004 was “recovery.” Despite consumer groups’ claims that insurance companies are “raking in the dough” but not sharing the love with homeowners, and carriers insistence that any gains they’ve made in the past year have only put a dent in the tremendous losses they suffered in previous years, 2004 did represent something of a turnaround for Texas’ homeowners market.

In December, the Independent Insur-ance Agents of Texas released the results of a survey of its 1,800 independent insurance agency members indicating the market was trending toward lower premiums and better coverages. The IIAT said slightly less than half of the agencies responding reported a drop in homeowners premiums during 2004. Some 34 percent of those responding reported as much as a 10 percent drop, 5 percent of respondents reported up to a 20 percent drop and 2 percent of respondents said they’ve seen more than a 20 percent drop in insurance premiums prices over the last year. An additional 30 percent of independent agencies reported no significant change in homeowners premium pricing.

IIAT President Bill Harrison Jr., an independent insurance agent from San Antonio, said the “survey confirms what we have been hearing for several months, that homeowners insurance in Texas is correcting itself.”

In March 2005, the Texas Department of Insurance announced that Texas homeowners insurers reported record low loss ratios for 2004, prompting the department to order some of the state’s largest homeowners insurance groups to file and justify their rates. The filings are due by May 1, 2005.

Overall, according to TDI, the industry had an average loss ratio of 27.6 percent. The department explained that expenses (premium taxes, commissions, overhead) averaged 32.6 percent, resulting in combined losses and expenses of 60.2 percent. It noted that this ratio does not include the amounts that prudent insurers will set aside for future catastrophe losses. Second quarter 2004 financial results submitted to TDI in September 2004 showed the average loss ratio for homeowners insurers for the first half of 2004 was 38 percent.

In late 2003, Insurance Commissioner José Montemayor ordered $510 million in homeowners rate reductions. Two companies, State Farm Lloyds and Farmers, were ordered to reduce their rates by 12 percent and 17.5 percent, respectively. While both challenged the reductions in district court, Farmers settled with the state in December 2004. with a 5 percent rate reduction for current and new customers and a one-time 15 percent discount for existing customers. State Farm’s court case is still pending and the company is required to submit its rates for review by TDI.

Per Montemayor’s order, a number of companies lowered their rates in 2004 (see chart on page 39).

Further reductions in 2004 and 2005, indicated by rate filings of various companies with TDI, range from -0.04 percent filed by Republic Lloyds to -11.40 percent filed by Texas Farm Bureau Underwriters.

In addition to or in place of lower rates, many companies are apparently oVering more coverage options. Nearly half of the agencies responding to the IIAT survey reported the availability of better coverage than that found in 2003. However, IIAT pointed out that not all homeowners insurers are oVering broader forms or lower premiums.