State puts property insurance crises on the right track

Dan Juneau
July 05, 2007 at 8:56 am  | Mobile Reader | Pring this storyPrint 

When Florida’s legislators met in special session in early January, they were emerging from the fall elections in which they promised the moon to their voters regarding lowering the skyrocketing cost of property insurance in the Sunshine State. The new governor and Legislature quickly learned that there was no easy way to deliver on the promises of huge cuts in business and homeowners’ property insurance rates. They ended up enacting bills that put the state treasury and insurance policyholders at great financial risk. Their legislation is driving insurers out of Florida and forcing hundreds of thousands of additional policies into their state-backed insurer of last resort.

When the Louisiana Legislature convened in late April, our legislators had their elections this coming fall very much on their minds. Many felt they would copy much of the high-risk Florida agenda and worsen an already severe property insurance crisis in Louisiana. This time—against all odds—Louisiana did it right, while others were doing it wrong.

Our Legislature needed some viable alternatives to what was done in Florida if they were going to avoid repeating the mistakes made there. Working with a group that formed to develop positive proposals, the Blanco administration introduced a package of bills designed to stimulate new property insurance writings in the private market and abolish the Insurance Rating Commission (IRC). Louisiana was the only state in the nation that continued to have a politically appointed commission involved in the rate-setting process. Some insurers won’t even look at doing business here due to that fact. The Legislature voted to abolish the IRC a few years ago, but Governor Foster vetoed that legislation. The Legislature has enacted the abolition of the IRC again, and this time Governor Blanco will sign it into law.

The centerpiece of the governor’s property insurance package was an innovative approach to enticing small and mid-level carriers who are not writing property insurance in Louisiana to enter the market here. The bill—which passed in the last 30 minutes of the session—will create a dollar-for-dollar state match for companies who will put up surplus capital to begin writing residential and commercial property insurance in Louisiana. The companies must be admitted to write in the state, have sufficient levels of reinsurance, and meet solvency requirements set by our Department of Insurance. They also must use at least 25 percent of the state dollars and their own capital to take policies out of our struggling state insurer of last resort, Louisiana Citizens Property Insurance Corporation. The carriers must also commit to write policies for five years. If they pull out of the market before that time they must repay their grant with interest on a prorated basis. This legislation can result in an increase of over $400 million in desperately needed property insurance underwritings and the removal of over half of the policies currently left stranded in our troubled Citizens insurance company.

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