State Farm Rate Hike an Exit Policy

Kate Medley

Leila Lang, 52, of Pass Christian, Miss., sifts through what is left of her home in the aftermath of Hurricane Katrina.

by Adam Lynch
September 9, 2009

Democratic Sen. David Baria, D-Bay St. Louis, says State Farm Insurance company's request for a 45 percent rate hike may be an attempt to pull out of the covering the state's coastal areas.

"They are trying to get out of the homeowner's market on the water. They don't like risk, and clearly we have some risks with homes on the coast," Baria told the Jackson Free Press. "Maybe they're trying to price themselves out of the market, but I don't know for sure."

State Farm submitted a request for the rate increase last month, which consist of a 46.9 percent increase south of Interstate 10 and 43.5 percent increase on the north side. The decision affects 25,000 policyholders on the coast.

"While we understand the impact this request may have on some policyholders, we also recognize our responsibility is to our entire policyholder base," the company stated in a memo to State Farm coastal insurance agents. "This rate change will provide us the ability to more appropriately balance the risk with ensuring our ability to continue to serve our policyholders along the Gulf Coast and throughout Mississippi."

Company spokesman David Majors could not be reached for comment.

The company has sought to decrease coverage on homeowner policies since the 2005 destruction of Hurricane Katrina. It confirmed last June that it would be not be renewing homeowners' policies within 1,000 feet of the beach, nor will it offer wind coverage to some areas further away from the Coast. The Mississippi Insurance Department already granted State Farm a 6-to 18-percent rate increase in 2008 for coastal homeowner policies that included wind coverage.

The new rate proposal comes with the benefit of an increased discount for homeowner policies without wind coverage. That discount includes a climb from 80 to 85 percent in the three South Mississippi counties bordering the hurricane-struck coastal regions and a 70 to 75 percent increase directly on the Coast.

Baria still takes issue with the company's unwillingness to cover wind damage, just as he has every year since the coverage was pulled following the onslaught of Katrina.

"They've taken out the high risk factors by not including coverage for wind and water, yet they still charge more for the Bay St. Louis policy? How do they get away with that?," Baria says.

The Mississippi Insurance Department will hold public hearings on the coast about the proposed rate increase within the next three months, after the increase is reviewed by industry professionals who can calculate the risk.

Chaney has already said the Mississippi Insurance Department will not grant the full rate increase request, however.

"The rate increases that have been requested are staggering. As the guy who signs off on them, I'm terrified of it. We're not going to give them a 45 percent increase. We're not going to do it. It can't be justified. State Farm told us they will not write any new business on the coast, even if we gave them the rate increase, so I don't even know what the incentive would be to grant them the rate increase," Chaney said. "We've got four or five more insurance companies that are asking for a rate increase. They're lining up. I don't know if this is some kind of test, or what they're trying to do to us."

Baria said the company may be looking to push customers into voluntarily dropping their policies in order to save their bottom line while preserving a positive public image. He says coastal residents are already paying impossible insurance rates, and could not retain coverage at the new rate.

"I think they're concerned about the public's perception," Baria said. "They try to create a nice, friendly public image. You've seen the commercials. After the hurricane hit and all the insurance problems that followed, they ran car insurance commercials 10 times a day. They're trying to have a good public image, but if they just pull out, it wouldn't help their image."

The company is not legally restricted from pulling home owner coverage from the coast. Baria submitted a legislative bill this earlier year, which died in committee, that would have forced insurance companies to offer identical coverage all around the state, meaning if a company like State Farm attempted to pull homeowner's coverage in a particular area then they would be restricted by state law from also offering other forms of coverage in that area, including more profitable policies like automotive, life and disability insurance.

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