Thursday, July 17th
on earth is happening out there? Is a
major hurricane churning in the Gulf and taking dead aim at Louisiana? Is the Mighty Mississippi on the verge of
overflowing its levees and about to flood thousands of acres, driving hundreds
of thousands from their homes? Something drastic must be up. After all, State
Farm Insurance Company just raised its rates on Louisiana homeowners by as much
that I said that State Farm
its rates. In most states, insurance companies are subject to a pre-approval
process wherein the insurance department determines if the increase is
warranted, so that the property owner can be assured that the increase is both
fair and necessary.
But Louisiana is
In the Bayou State, insurance
companies are not required to get rate increases pre-approved.
So the answer to the question of how come big
insurance companies can stick it to homeowners, whether or not such an increase
is justified, is simply this -- they do it because they can.
in the days when I served as Louisiana Insurance Commissioner, I worked with
Texas Commissioner Bob Hunter on a variety of insurance issues affecting our
Currently, he’s the
Insurance Director for the Consumer Federation of America.
I called him to get his view on the
dramatically rising property insurance rates in Louisiana.
“Puzzling,” he said.
“A real outlier.
Maybe a slight increase because of
But such a big increase is
national insurance reporting publications indicate why property insurance rates
should be going down, not up.
The FPN Insurance
Journal reported that natural catastrophes caused less than half the damage
this year compared to the past 10 year average.
USA Today reports that we are experiencing one of the quietest years for
hurricanes and other national disasters in many years.
The Insurance Journal reported that insurance
companies nationwide have seen rate reductions in the past three years.
no major storms in recent years, “more capacity will become available and
prices will start to come down,” says Shivan Subramaniam, chief executive of
commercial property insurer FM Global.
So all over the country, insurance rates for homeowners have stabilized
and should begin to decrease.
But not in
Huh? Surrounding coastal
states have just as much exposure to natural disasters as Louisiana does.
But they are experiencing no huge rate increases.
When there is no prior approval of
rates, up they go.
me share a story of how effective proper regulation can be.
Under the old system, the governor appointed
a six member rating commission.
Insurance companies had to appear before the commission and make their
case for any rate increase.
commissioner, I served as chairman of the commission, and then Governor Mike
Foster made the appointments.
served as a good check and balance.
Farm asked the commission for a major increase in December, 1997.
Governor Foster called me and asked that I
convey to the members that he wasn’t for any rate increase, particularly as the
holidays were approaching.
I told the
commissioners of the Governor’s concerns, but State Farm did a major lobbying
job of wining and dining them.
of joint objections from both the Governor and me, the commission unanimously
approved the State Farm rate increase.
The next morning around 6:30 am my phone rang.
“Jim, Mike Foster.
Sorry to bother you so early, but I have one
Did you tell my appointed
commissioners of my concern that no rate increase should be given to State Farm?”
I told him, yes, I had conveyed his message
to each of the seven commissioners. “Thanks, that’s all I needed.”
hours later, Governor Foster called a press conference and fired all seven
An insurance company
needs to have a fair rate in order to stay in business.
But gouging the property owner without
justification and some type of check and balance is not fair to the insured,
and bad for economic growth in the state.
legislature, the governor and the insurance department could learn a good lesson
from the Foster years.
Be fair, but
don’t let rate increases take place at a company’s whim.
Property owners deserve better.
“It’s not hurricanes
that are causing high insurance rates, but bad government policy.”
analyst Michelle Minton
Jim Brown’s syndicated column
appears each week in numerous newspapers throughout the nation and on websites
worldwide. You can read all his past columns and see continuing updates
at http://www.jimbrownusa.com. You can also hear Jim’s nationally syndicated
radio show each Sunday morning from 9 am till 11:00 am, central time, on the
Genesis Radio Network, with a live stream at http://www.jimbrownusa.com.