Louisiana’s auto insurance rates now highest in the country
Auto insurance rates have climbed steadily in Louisiana since Hurricane Katrina and are now the highest in the nation, with the average driver paying an annual premium of $2,510, according to a new study by the Web site Insure.com.
The data confirms a trend thoroughly documented by the National Association of Insurance Commissioners.
The NAIC only has data through 2007, but its more comprehensive analysis shows a clear trend of Louisiana auto insurance prices worsening relative to other states. From 2003 to 2005, Louisiana ranked fourth in the country in average auto insurance premiums and expenditures. In 2006, the state jumped to third place. In 2007, Louisiana advanced to second place, with average auto insurance expenditures at $1,262. The NAIC and Insure.com used different ways of calculating car insurance premiums.
Louisiana drivers also pay much higher rates than their peers in nearby states. In Mississippi, drivers paid an average of $814. In Texas, with its large cities and crowded freeways, the average was $955, still 24 percent lower than Louisiana.
Theories abound as to why the state’s insurance rates are so high. Some point to the litigious nature of Louisiana and poor driving habits. Others wonder about the rate of car thefts and vandalism.
Insurance Commissioner Jim Donelon said the problem of high auto insurance rates in the state is not new; the state has been in the top 10 of car insurance prices for at least the two decades he has been monitoring the numbers.
He said the problem is not that Louisiana car insurance rates have gone up in any significant way, it is that rates in other states have gone down.
According to NAIC, places with high auto insurance rates tend to be highly urbanized, such as the District of Columbia where many miles are driven on a limited number of roads, increasing the potential for collisions. High auto insurance rate states also tend to be ones with plaintiff-friendly court systems that yield higher settlements.
In Louisiana, judges are elected, personal injury lawyers advertise heavily on television and the sides of buses and the state has a direct-action law, allowing people to sue insurers directly.
“I think here, more than anywhere, it’s a litigious society, even on these little fender benders,” said Chris Paulin, who is vice president of Insurance Underwriters Ltd. in Metairie and president of the local chapter of the Independent Insurance Agents and Brokers of Louisiana.
The state’s relatively poor population could also make people more inclined to sue or wring everything they can out of an insurance policy. About 12 percent of Louisiana motorists have no car insurance, and another 40 percent of Louisiana drivers have only the required minimum levels of coverage. That means that, taken together, half of the state’s drivers are essentially saying through their insurance choices that they have no assets to protect. Meanwhile, about 19 percent of Louisianans have no health coverage, making them more likely to pursue an injury claim if they are in a wreck.
Indeed, according to the Insurance Research Council, Louisiana is different from other states in that people tend to make claims for bodily injuries even if those injuries are not that bad. “While the severity of the claims in Louisiana is not unusual — in fact it’s a little lower than the countrywide average — Louisiana has the highest frequency of bodily injury claims,” said David Corum, vice president of the Insurance Research Council.
The national health care legislation and a state law that took effect Jan. 1 setting higher minimum standards for liability coverage could start to change that. The floor for auto insurance used to be $10,000 for per person bodily injuries, $20,000 for all injuries in the car and $10,000 for property damage. Now, the minimum levels are $15,000 for injuries per person, $30,000 for everyone in the car and $25,000 for property damage.
Richie Clements, an insurance agent from Chalmette who is the national director for Professional Insurance Agents of Louisiana, said he has seen rates go down during the past four or five years with enhanced competition among auto insurance writers. He said he does not think the state hase seen the bottom.
Clements said there is more room for improvement by focusing on driver habits and general conditions for safe driving in the state. He said many of Louisiana’s thousands of railroad crossings do not have cross arms, many people do not wear seat belts and, lots of people do not make complete stops or use their turning signals. He also questions whether the state needs to be more vigilant about testing drivers, enforcing safe-driving rules and improving roads.
“How many times is it that you’re getting ready to make a turn and you’re the only one who seems to know how to use a turn signal? What about rolling stops?” Clements said.
Finding a dealDonelon, who has been running the insurance department since the beginning of 2006, said he has been trying to attack the problem through competition and regulatory reforms to make Louisiana a more attractive place for insurers to do business. He said abolishing the Louisiana Insurance Rating Commission at the end of 2007 — the most recent year of the NAIC statistics — should start to make a difference. About two dozen new auto insurance companies have come into the state in the past few years, Donelon said, and now that companies feel they can get a fair hearing from the insurance department on rates, they may be more inclined to lower them.
Donelon said if people take the time to shop around or buy policies with higher deductibles, most will find better deals.
“I firmly believe that competition — and we are seeing more auto insurers come on a regular basis — is the best way to protect consumers,” Donelon said. “It has not turned our costs around yet, but it has stabilized our insurance costs.”
Some have questioned whether replacing the rating commission with a “file and use” system, where companies file plans to change rates that automatically take effect in 45 days unless the Louisiana Department of Insurance raises concerns, has allowed insurance companies to gouge people on car insurance rates. However, statistics do not seem to bear that out. The rate filings by the state’s largest auto insurers, which are available on the insurance department’s Web site, do not reveal any major rate hikes. And, according to the NAIC, it has not seen any evidence of excess profits among auto insurers in Louisiana.
In fact, Donelon said the problem of high car insurance rates is not universal; the highest rates are concentrated entirely in the New Orleans metropolitan area.
Alarmed by the NAIC auto insurance rankings, Donelon asked his actuarial staff to look at prices on a parish-by-parish basis. What they found is that the only places where premiums were more than 10 percent above the statewide average were in Orleans, St. Bernard, Plaquemines and Jefferson parishes.
Those also happen to be the areas hardest hit by Hurricane Katrina. About $2.2 billion worth of cars were lost during Hurricane Katrina across all states affected by the storm, according to the Insurance Information Institute, including about 300,000 in Louisiana. Several insurance groups said overwhelming auto losses after Hurricane Katrina probably had some effect on prices, but would not be the dominant factor driving auto insurance rates in the state.
Areas hard-hit by recent hurricanes are also among the places where road conditions have sharply deteriorated. Donelon said he believes that car thefts and vandalism in the New Orleans area are also factors.
Another culprit in high auto insurance prices could be homeowners insurance. With so many people having trouble finding residential coverage outside of the state-sponsored Louisiana Citizens Property Insurance Corp., private insurers have had more leverage and have often required customers to buy car insurance from them if they want homeowners coverage. It is possible that more consumers in coastal areas either have been unable to comparison shop for car insurance or were afraid to do so.
“I urge consumers to shop their auto insurance, because the overwhelming majority can save money,” Donelon said.