By Ed Anderson
BATON ROUGE — The board that oversees the state-run insurer of last resort Thursday asked Insurance Commissioner Jim Donelon's office to approve an overall average 9 percent rate increase for homeowner's policies starting July 1.

Steve Cottrell, chief financial officer of the Louisiana Citizens Property Insurance Corp., said that Donelon's office can approve or reject the new rates sent to him by the board. After Donelon's action the rates must return to the Citizens board for final approval.

The board, meeting with a bare majority of seven members, voted 4-2 to send the proposed rate increase to Donelon. The seventh member of the board, Denise Brignac, who serves as chair of the board, did not vote.

Cottrell said the application should be back before the board in 30 to 60 days.

If approved as submitted, the average Citizens homeowner's policy will increase by about $200, from about $2,000 a year to $2,200, but many of the 115,000 policyholders will see a higher increase, some less.

"This is not the approval of the rates," Cottrell told the board. "It is approval of the submission" of the rates to Donelon.

Meanwhile, Donelon approved a 2.14 percent rate increase for the roughly 5,000 commercial policies insured by the Citizens — the exact rate the board sent to Donelon weeks ago.

Donelon said the commercial rates will go into effect May 1 for new and renewing policies.

The average premium increase will be about $65 per policy, meaning an average commercial policy will go from $3,234 to $3,299.

The commercial and homeowners rates are divided into two groups: above the Gulf Intracoastal Waterway and below it. The commercial rates for stores, warehouses, apartment buildings and other structures above the waterway will decrease about 2 percent from about $2,938 per policy to $2,879 per policy. Those below the Intracoastal will see an average increase from about $6,086 to about $7,547.

The commercial rates, which take effect May 1, will generate an additional $374,000 for Citizens. The amount of money the proposed new homeowner's rates would generate was not given.

The requested 9 percent average homeowner's rate increase calls for most of the polices to go up about 8.8 percent above the waterway with an 11.8 percent increase below it.

By law, Citizens policies must be priced at least 10 percent higher than the highest rates charged by private insurance companies in an area. The 10 percent surcharge does not apply in St. Tammany, Calcasieu and 10 of the parishes that border the Gulf of Mexico.

For parishes divided by the Intracoastal, two rates were proposed.

For example, actuaries proposed an increase in Citizens homeowner insurance premiums of 15 percent above the waterway in Jefferson Parish and an increase of 49.4 percent below it. In Orleans Parish, rates would drop 14.2 percent below the waterway and increase 10 percent above it.

Cottrell said that more than 80 percent of the rates are in an area are "driven by the (private insurance) market" and the premiums the private companies charge.

The others are set based on risk and projected losses in an area based on computer models.

"Each year the models get a little more precise," Cottrell said.

Times Picayune — New Orleans, La. — January 14, 2011