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2006: A look back - A look ahead  
  A quiet 2006 produced record profits for insurers but a number of scenarios could trigger a disastrous 2007 with $100 million or more in claims.
 Insurance
 Personal finance calendar  Personal finance calendar 

Quiet '06 hurricane season may calm rate hikes

Since insurance companies are forced to pay more for their safety net, they pass along much of the cost to consumers.

And the pressure isn't just on homeowners policies.

Commercial insurance rates are up as high as 500 percent in some heavily hit Gulf Coast states, such as Louisiana, says Jim Donelon, insurance commissioner for Louisiana.

"If you are a small-business owner, a rate hike of 500 percent is just unbearable," says Donelon.

In addition to raising rates, insurance companies are also putting tighter restrictions on what they will cover. For example, Barry says insurers are forcing homeowners in some markets to install hurricane-resistant upgrades, such as storm shutters, before they qualify for insurance.

In other markets, such as the highly exposed southern Louisiana coast and some areas of Florida, insurers are pulling out all together, Donelon says. "We are in a very hard market," he says.

When insurers are looking to renew policies along the coastal United States, they are now taking entire regions into account, rather than considering each state as a separate market.

"The insurance market looks at the entire Gulf Coast as one hurricane alley," Donelon says, adding he hopes a few more inactive years like 2006 will be enough to convince more insurers to move back to the coast and begin writing policies again.

"With some good fortune and some more willingness of the industry to re-enter those markets, prices will stabilize the way they did following the Sept. 11 terrorist attacks," he says.

Aside from homeowners and commercial insurance, other insurance costs stayed comparatively under wraps in 2007.

Auto insurance, for example, saw an increase of just a half percent in 2006, significantly less than the rate of inflation. Analysts at III attribute that tempered increase to a declining number of auto accidents, safer cars, new auto theft technology and fraud-fighting efforts.

Health insurance also took a comparatively modest increase during 2006. According to a study commissioned by the Kaiser Family Foundation, health insurance premiums increased by 7.7 percent. And while that is more than the rate of inflation and almost twice the rate of wage increases for 2006, Donelon points out it is a smaller increase than both 2005 when costs increased 9.2 percent and 2004 when costs jumped 11.2 percent.

"That's still too high, but it's still better than the double-digit increases we experienced for decades," Donelon says.

Increased federal Medicaid reimbursement rates make up part of the equation that helped relieve some pressure on the private insurance market, he says, which helped temper price increases.

"Whatever the reason we welcome the relief," he says.

Michael Giusti is a freelance writer based in New Orleans.

-- Posted: Nov. 1, 2006
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