The Louisiana Citizens Property Insurance Corp.’s board said Thursday that the rate increase is being driven in part by higher reinsurance costs for coastal areas south of the Gulf Intracoastal Waterway.
Although the overall increase is 7.7 percent, under the proposed rates 93 percent of Citizens’ policyholders would see an average increase of 5.3 percent, Chief Financial Officer Steve Cottrell said.
Seven percent of policyholders in the coastal plan would see a 30.2 percent increase; all but 2 percent of that is for additional reinsurance costs.
The new rates, if approved by the state Department of Insurance, would go into effect June 1.
Insurance Commissioner Jim Donelon has recommended Citizens increase its reinsurance to cover the damage caused by the kind of storm that occurs once in 100 years.
Citizens has not bought that much reinsurance before, board member Eric Berger said. In 2012, Citizens had enough reinsurance to cover the damages from a 1-in-45-year or a 1-in-50-year storm.
In East Baton Rouge Parish, homeowners rates would increase an average of 7.4 percent, Citizens records show. Citizens says that is because State Farm, the most expensive private insurer in the parish, raised rates by the same percentage.
Other overall proposed rates include Ascension, up 7.8 percent; Livingston, up 10.9 percent; and Lafayette, down 30 percent.
Most of Orleans Parish would see a decrease of 2.1 percent, while Jefferson Parish would see rates rise 6.1 percent. However, in areas south of the Intracoastal Waterway, homeowners in those parishes would see rates increase 25 percent.
In other action, the board voted against borrowing money to cover an expected $119 million shortfall.
Cottrell said the board had three options to cover the shortfall: do nothing, levy an assessment on property insurers or borrow the money by issuing bonds. Citizens’ staff had recommended borrowing $100 million and drawing on the insurer’s $75 million line of credit to maintain the required $125 million cash reserve.
Last year, Citizens had to pay a $104 million penalty in the first phase of a class-action lawsuit over taking too long to begin adjusting claims from hurricanes Katrina and Rita. Citizens also had $75 million in Hurricane Isaac claims.
The insurer still owes $63 million to settle two class-action lawsuits and must also return $10 million to coastal policyholders, Cottrell said. Citizens has to return money because the state Legislature passed a law during the last session that exempts policyholders in 12 parishes from paying the 10 percent Citizens must charge over the rates of private insurers.