After MID awarded State Farm a 19.5% rate increase, the Company decided to forgo the shock ’em first approach it brought from Florida Mississippi- …and the score in the State Farm game was 45-19.5…– and go with a 19% requested increase in Louisiana.
“State Farm, Louisiana’s largest homeowners insurer, has asked regulators for a 30 percent rate increase for policyholders in Terrebonne and Lafourche parishes.
Coastal parishes would take the brunt of the proposed increases, which average 19.1 percent statewide.
The Louisiana Department of Insurance will consider the request, which could generate $67.6 million, or an average of about $229 per Louisiana policyholder. The company has about 296,000 policyholders in the state…”
This brings us to the part of the story where things start to go fuzzy, shall we say. I believe our commentor Lynda to be a person of integrity and, consequently, I likewise believe she accurately described what a rate increase covers in her response to a question posed by Sop:
“Since insurance companies are in business to make a profit (otherwise, they’d have no reason to exist), they MUST recoup those losses – as quickly as possible – by increasing rates enough to cover expected future lossess AND to make up the shortfall for having underestimated past losses.”
In light of this, I question the accuracy of the quote from State Farm spokeswoman Molly Quirk-Kirby:
“Quirk-Kirby said rate increase requests are based on projections of future losses and expenses — and not past losses, such as insurers sustained during the hurricanes of 2005 and 2008.”
The differing responses likely mean State Farm is up to more Monkey Business:
“Transactions between State Farm Mutual and State Farm Florida for reinsurance and credit risk provisions totaling approximately $561.8 million, when viewed in the light of economic reality, Subsection 1.01(3), or Section 624.04, may be transactions which State Farm Mutual engages in with itself and which lack any independent economic significance. Transactions with no independent economic significance would be sham transactions which may distort the economic costs of the reinsurance and credit risk provisions purchased from State Farm Mutual. Such economic distortions may enable the group to derive a rate advantage from the legal form in which State Farm Mutual chooses to do business in Florida.”
State Farm rate increase requests make the slabbed go bananas – and now you know why. Reportedly, a decision on the Louisiana request will come next month.