A new report from the National Association of Insurance Commissioners examining insurance premiums and risk exposure in every state was released in early January, and state insurance regulators and legislators alike are now scrambling to explain how these rates came to be. In the press release announcing the new report the NAIC explained how they collected their information and what it means.

"The report includes countrywide, state-specific premium and exposure information for homeowners' insurance package policies and for non-commercial dwelling fire insurance. Included are descriptions of the data and a discussion of how certain economic, demographic and natural phenomena impact the price of homeowners insurance.

"The report includes written exposures (earned house years) and aggregate written premiums by state and countrywide for the 2009 data year. It contains three tables that show individual state and countrywide exposures by policy type, individual policy form, as well as amount of insurance coverage, which is divided into ranges with percentages of total exposures provided for each range. This data is also broken down into state specific tables."

Texas nation's most expensive insurance market

The state with highest insurance premiums was Texas. While consumers groups have used the report results to push for reform, insurance experts in Texas attribute these high rates to Texas' high risk location along the hurricane prone Gulf Coast and the three major hurricanes to hit Texas in recent years.

From the Dallas Morning News:

"Consumer groups warned that Texas homeowners should not expect any relief soon, while industry representatives noted that premiums in the state are not rising as fast as in other states.

"For as long as anyone can remember, Texas has had among the highest insurance rates in the nation," said Alex Winslow of Texas Watch, a consumer group active in insurance issues.

"The flip side is that coverage for most homeowners is getting slashed while their rates keep going up. With higher deductibles, expanded exclusions and a growing number of junk policies, Texas policyholders are being forced to pay more for less," he said. "It's like being forced to pay Cadillac prices and getting stuck with a clunker."

Winslow said the situation would not improve until the Legislature beefs up laws regulating insurers and the commissioner of insurance "gets tough" with companies.

Mark Hanna of the Insurance Council of Texas said the premiums listed in the study reflect how catastrophic weather events can affect homeowner rates. He noted that several states with higher premiums were along the hurricane-prone Gulf Coast or in areas that experience a large number of destructive storms.

"The NAIC figures [based on 2009 premiums] came one year after Texas was hit by three hurricanes, which included Hurricane Ike, the costliest storm in Texas history," Hanna said.

While Texas' insurance rates were high, they are not increasing at as steady a rate as other states; several insurers have argued that this is due to the increasing competitiveness of the Texas insurance market.

"Texas homeowners paid the most expensive insurance premiums in the country for the second year in a row, although average premiums in the state have not been increasing as sharply as in other states, according to new figures from the National Association of Insurance Commissioners.

"The average annual cost of the most commonly sold policy in Texas was $1,511, which is well above the national average of $880 and about $50 more than in the state with the second-highest rates, Florida. Eight states had average premiums above $1,000 a year, and some of those have seen dramatic increases in recent years.

"While Texas rates were up 3.5 percent ($51) from the previous year, the national average was up 11 percent as insurance rate increases exceeded the rate of inflation in several states. The figures were based on premiums collected in 2009, the most recent year for which figures were available."

Louisiana third highest, but with market becoming more competitive

Similar results to Texas were found in Louisiana. Louisiana had the third highest rates in the NAIC study, but like Texas rates rose much more slowly then the years after Katrina.

From the Insurance Journal:

"Homeowners insurance premiums in Louisiana remain among the nation's highest, but are rising much more slowly than they did in the first two years after Hurricane Katrina, new data from by the National Association of Insurance Commissioners show.

"Louisiana remains the third-most expensive market in the nation for homeowners insurance, behind Texas and Florida, The Times-Picayune reported. The statewide average premium was $1,430 in 2009, the most recent year for which data is available.

"The average rose 9.9 percent in 2006 and 11.4 percent in 2007 — but only 0.35 percent in 2008 and 1.78 percent in 2009. The 2007 increase was the nation's largest, and that in 2006 was the third-largest in the country."

Consumer groups and insurance regulators disagree whether additional regulation is needed to bring rates down. Robert Hunter of the Consumer Federation of America has argued that insurers in Louisiana have eliminated much of their risk, and new regulations are needed to bring down what he calls gouging.

"However, Bob Hunter, director of insurance at the Consumer Federation of America, said that while competition can do wonders for rates in a stable market, after a storm, when insurers are eager to raise rates and drop coverage, strong regulation makes a bigger difference in keeping rates moderate.

"Hunter suspects that companies use storms to gouge people. Hurricane Katrina may have been the largest insurance event in history, but if one looks at the financial impact that it had on the insurance industry nationally, it's much less significant than the impact of Hurricane Andrew in 1992 — a much smaller event by insured losses.

"With each disaster since Andrew, insurers have increased deductibles, trimmed coverage and dropped policies, all of which foist risk back on policyholders — and, through disaster aid, taxpayers — yet they have continued raising rates. The result is that insurers are better financed and shoulder less risk, so even a big event like Katrina didn't rock the industry.

"'They have basically eliminated their risk,' Hunter said. 'Why haven't these things worked to bring rates down? Are they just gouging?'

"'It really requires regulation,' he said."

Louisiana Insurance Commissioner Jim Donelon has argued that the state has seen significant improvement in its insurance market, with more private companies entering the state, making the market more competitive. Rather then layer on new regulations that could stifle competition, Donelon supports policies that create more opportunities for private companies to enter the state. So far, under Donelon these efforts have been successful, with new startups becoming more active players in the insurance market and fewer policies entering the state run insurer Citizens.

Louisiana Insurance Commissioner Jim Donelon said the moderate premium increases reflected in the NAIC data are consistent with the stabilization that he has seen in the homeowners market. "I am encouraged, and not surprised," he said.

Donelon credits new competition with taming the runaway rate increases immediately after the storm. About a dozen companies have become active players since the storm, some of them new companies that came here with the $29 million in incentives awarded by the state, some startups or new players that came here on their own, and some longtime players such as Liberty Mutual or the Republic Group that greatly increased their policy-writing over the past six years.

While those new players have not succeeded in bringing down rates, Donelon said his market strategies have been successful. "The best regulator of cost is competition," he said.

by MATTHEW GLANS on JANUARY 19, 2012