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State Farm and the Mississippi Gulf Coast

To say the state’s relationship with America’s largest insurer has been rocky would be an understatement

 

By NASH NUNNERY I STAFF WRITER

nash.nunnery@msbusiness.com

To say the relationship between Mississippi Gulf Coast residents and State Farm Fire and Casualty Co. has been rocky since Hurricane Katrina might be an understatement.       

For the past four years, the battle has intensified, with hundreds of homeowners in Mississippi and Louisiana suing the company and other insurers for denying their claims after the 2005 storm. The lawsuits typically accuse insurers, including State Farm, of bad faith and breach of contract for refusing to pay for damage from Katrina’s storm surge.

“Though storm modeling reported Katrina’s 150-mph winds damaged homes three to four hours before water came ashore, insurance companies refused to pay for wind damage,” said Rep. Gene Taylor (D-Miss.), who represents south Mississippi.  “Homeowners were forced to take legal action against their insurance companies who had delayed paying wind claims — sometimes by years – before cutting checks that should have been cut within days.”

In 2007, State Farm was accused of a “pattern of racketeering” by manipulating engineering reports on Katrina damage so the company could deny policyholders claims, according to a federal law suit filed by now-imprisoned attorney Dickie Scruggs, who played a prominent role in challenging the insurance industry for its handling of Katrina claims.

Scruggs’ 103-page lawsuit claimed State Farm, the state’s largest insurer, engaged in racketeering by procuring  “scientifically dishonest” inspection reports and conducted “sham inspections” of homes so that damage could be falsely attributed to Katrina’s flood water.

Earlier this month, Mississippi Insurance Commissioner Mike Chaney told State Farm officials that he would temporarily deny the company’s request to increase homeowners’ rates by a whopping 45 percent in the state’s three coastal counties.  However, Chaney added, “We’re open to negotiating with (State Farm).”

State Farm spokesman David Majors said his company is happy to comply with Chaney’s request for more data regarding the proposed rate hike.

“We have 30 days to get the information to him and work with the department,” said Majors.  “We’re committed to that marketplace.  All premiums are based on anticipating our customer’s needs and our ability to pay claims.”         

Chaney told the Associated Press that he believes the proposed rate increase is unjustified.

“State Farm told us they would not write any new business on the Gulf Coast even if we gave them the rate increase,” he said.  “I don’t’ know what the incentive would be to give them a rate increase.”

State Farm has about 26,000 policies in Hancock, Harrison and Jackson counties, which were devastated by the 2005 hurricane. 

Chaney added that State Farm last requested a rate increase in 2006, a 13.6 percent increase that he approved in 2008.

“I think it’s too early for them to have a rate increase,” he said.

Meanwhile, four years after the storm tore through the Gulf Coast, the rebuilding of homes and communities is hampered by the ripple effect the insurance crisis is having on the economy and recovery.

“It’s a crying shame what we have to pay in insurance premiums,” said Althea Jones, a D’Iberville homeowner.  “Since Katrina, my premiums have hit the roof — I can’t do this much longer.”  

Taylor said that homeowners insurance — both cost and payment — is the obstacle preventing a speedier recovery for the Gulf Coast.

“Throughout Mississippi’s six most southern counties, major insurance companies refuse to write new policies,” he said.  “This dumps folks into the insurer of last resort – the state government wind pool, which has been stabilized lately with federal taxpayer dollars.”

Those premiums are out of out of reach for many citizens, Taylor said.

“Even local Habitat for Humanity chapters report the cost of homeowner insurance is more than the mortgage,” he said.  “Often, qualified applicants become unable to pay for an otherwise affordable home.”

Commercial insurance rates have also increased significantly on the Gulf Coast, with some businesses in Hancock County reporting an average increase in premiums of between 300 to nearly 670 percent, according to figures released by the county’s Chamber of Commerce.

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