Louisiana Gets Flex Rating Next Year

Louisiana Gets Flex Rating Next Year

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

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

The measure, Senate Bill 721, which was pushed by the Coalition to Insure Louisiana, takes effect Jan. 1, 2004 and permits insurers to increase or decrease rates by 10 percent within a year without appearing before the Insurance Rating Commission.

According to the National Association of Independent Insurers in Des Plaines, Ill., within 10 years the number of companies offering property insurance in the state has dropped from 120 to less than 20.

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

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

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

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

"In addition, State Farm has indicated they will make every effort to maintain a significant presence in the state of Louisiana," he noted.

He said he had "talked to the insurance commissioner of South Carolina who did in fact say that their system was somewhat different from ours but the competition has increased and rates have stabilized by trying this approach."

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