Louisiana Gets Flex Rating Next Year

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NU Online News Service, June 16, 1:22 p.m.EDT?Louisiana next year will see new legislation takeeffect permitting property insurers to make instant rate changes ofup to 10 percent without prior regulatory approval

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The way was cleared for the change last week when Louisiana Gov.Mike Foster announced that, based on promises from insurers, hewould allow the legislation to take effect without his signaturedespite "serious reservations."

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The measure, Senate Bill 721, which was pushed by the Coalitionto Insure Louisiana, takes effect Jan. 1, 2004 and permits insurersto increase or decrease rates by 10 percent within a year withoutappearing before the Insurance Rating Commission.

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According to the National Association of Independent Insurers inDes Plaines, Ill., within 10 years the number of companies offeringproperty insurance in the state has dropped from 120 to less than20.

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NAII said even with the latest change, the market is stilltroubled by a judicial system that "generates consistently highdamage awards that drive loss costs to record levels."

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Gov. Foster, in permitting the flexible rating bill to go intolaw, noted that, "Louisiana's rates are considerably higher thanthe majority of its neighbors and, for that matter, are some of thehighest in the country."

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He said he was worried that the legislation would not addresssystemic problems with the marketplace
and, "By granting reoccurring rate increases, it may well take thepressure off both companies and the legislature for making reformthat would, in fact, get Louisiana's high rate structure undercontrol."

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He said, however that, "On the other side of this equation,meaningful concessions from some of our major carriers have beenmade to me. They have promised not to abuse this system, haveagreed in fact to sell more policies while waiting for competitionto come into the state, and agreed to cap rate increases in orderto avoid small areas of the state being subject to impossible rateincreases.

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"In addition, State Farm has indicated they will make everyeffort to maintain a significant presence in the state ofLouisiana," he noted.

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He said he had "talked to the insurance commissioner of SouthCarolina who did in fact say that their system was somewhatdifferent from ours but the competition has increased and rateshave stabilized by trying this approach."

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Gov. Foster said if rates are not lowered or stabilized underthe new law and "this authority be abused, this change in lawshould be reversed and [that] can be done simply by a majority voteof the legislature."

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