Huge Insurance Problems in Louisiana!

Thursday, December 22nd, 2011
Baton Rouge, Louisiana

LOUISIANA PROPERTY OWNERS FACE
ANOTHER STATE CREATED FINANCIAL DISASTER!

Merry Christmas Louisiana. Here’s your present from the public officials you sent to the state capitol. A big boost in your property insurance premiums! All from the same folks who have been sticking you with higher rates for years because of their poor oversight and downright incompetence. So get out your checkbook and enjoy your holidays. More increases are on the way.

Just two weeks ago, State Farm policy holders were blindsided with a whopping rate increase of as much as 14% in some parts of the state. Many customers are wondering why there was such a rate increase was implemented. The economy has stagnated, there is little inflation, and prices across the board are down. Insurance rates are dropping in many other states, but Louisiana continues to have the highest premium costs in the nation. There have been no recent serious weather related damages throughout the state. So how can an insurance company justify a rate increase during this troubling economic climate? Simply put, they did it because they can.

In the majority of states throughout the U.S., insurance companies have to file a request to raise rates before the insurance department. Actuaries and other insurance officials scrutinize these requests to be sure the rate request is justified. But not in Louisiana!

The insurance industry did some heavy lobbying a few years back and poured hundreds of thousands of dollars into the coffers of willing legislators and insurance regulators. And Voila! No more prior approval to raise rates required. Such “sweetheart deals” do not exist in Texas, Mississippi, Arkansas and in virtually no other state throughout the south. And guess what? Property insurance rates are much lower outside Louisiana.

So that was the bad news two weeks ago. But now, if you own a home, here’s your New Year’s present. Every property owner in the state is about to be stuck with yet another assessment on their property because of the incompetence and outright fraud on the part of those who both formed and have run the state created Citizens Property Insurance Company.

Just last week, the Louisiana Supreme Court ruled that Citizens will be stuck with a judgment approaching $100 million for failing to pay claims to property owners following Hurricanes Katrina and Rita in a timely manner. Private sector companies followed the law and paid the money owed for damages appropriately. But the incompetence and tardiness of the public officials in charge rose to the level of mismanagement. The requirements that other companies complied with were ignored by Citizens.

Following the court’s ruling, Fred Herman, the New Orleans attorney for a large number of unpaid homeowners, blasted the public officials in charge by saying, “It demonstrates the utter and abject failure of Citizens to perform their statutory and contractual obligations to their insureds… Those are the types of things that people need to understand when they’re re-electing them.”

And the bad news for Louisiana homeowners could get much worse. There is a separate claim of incompetence against Citizens by 10,000 more homeowners that could cost property owners an additional $50 million. And this money, that could exceed $150 million, does not come out of the state treasury. It will come from an assessment on every Louisiana property owner, regardless of who his insurance company might be.

Citizens Insurance Company was a disaster waiting to happen from its very inception. Created by the Louisiana Legislature at the behest of the Insurance Department, Citizens had to be one of the most poorly constructed business operations ever conceived by a state legislature. The company was broke from day one, with no capital and no surplus available to get Citizens started on a sound financial footing. It became obvious early on that no one at Citizens had any idea of how to run an insurance company.

In addition, a mother’s mantra of any successful insurance company is that there must be adequate reinsurance. There must be a safety net in case a storm like Katrina comes along. The legislature and the insurance department failed to require that Citizens have sufficient reinsurance, and that single negligent decision stuck every policy holder in the state for a bill that will far exceed $1 billion. By virtually every standard that any private insurance company must measure up to, Citizens has failed miserably.

Citizens was a inauspicious cataclysm from day one. With these massive new assessments now being saddled on the backs of Louisiana property owners, the Citizens debacle continues to get even worse. The best solution would be to shut the company down completely. At a minimum, Citizens needs major restructuring with more requirements for both legislative and auditor oversight.

Unfortunately for those stuck with the bill, there seems to be little concern at the state capitol to straighten out this publically created disaster that continues to fester and grow.
*****
“It’s not hurricanes that are causing high insurance rates, but bad government policy,”
Policy analyst Michelle Minton

Peace and Justice.

Jim Brown

Jim Brown’s syndicated column appears each week in numerous newspapers and websites throughout the South. You can read all his past columns and see continuing updates at www.jimbrownusa.com. You can also hear Jim’s nationally syndicated radio show each Sunday morning from 9 am till 11:00 am, central time, on the Genesis Radio Network, with a live stream at http://www.jimbrownusa.com.

Major Insurance Problems on the Gulf Coast!

Thursday, April 28, 2011
Baton Rouge, Louisiana

LOUISIANA AND FLORIDA--
NIGHT AND DAY ON PROPERTY INSURANCE!

All this week, Florida’s largest newspaper, the Miami Herald, has been writing both feature articles and editorials about the problems facing Florida property owners in finding affordable insurance. Day after day, headlines conveyed the intensity of the struggle -- “Storm Warning: Prop up Insurance,” was a typical lead, along with, “Is Citizens Insurance ready for the big one?” and “Lawmakers still scrambling on wind insurance.” Florida, like all gulf coast states, has problems of both insurance affordability and availability. But here’s the difference between the Sunshine state and the Bayou state. Florida is giving the problem serious attention. It’s a front and center concern for the governor, the legislature, insurance regulators, and the news media. In Louisiana where I live, there is hardly a whisper.

When Florida Governor Rick Scott took office a few months ago, his first words of commitment were: “The lack of available and affordable property insurance is the biggest threat to our economy.“ Just this week, Scott began exploring how to sharply curtail or even shut down the state’s Citizens Property Insurance Company. The Miami Herald editorialized just last week that the Florida legislature should allow no more property insurance rates in the state. The Florida governor and the legislature are taking the insurance problem head-on.

Florida has significantly more hurricane exposure than does Louisiana. Ninety percent of all homeowners live within a few miles of the Gulf or the Atlantic Ocean. A hurricane crossing the Florida peninsula slows down, at best, only 15 miles per hour. Yet in spite of all this exposure, property insurance rates are cheaper in Florida than in Louisiana. In Perdido Key, on the Florida-Alabama border, many Louisianans have beach homes or condos. On average, they pay significantly less on these properties than they do on their homes in New Orleans, Baton Rouge and other Louisiana cities. Property insurance rates for commercial real estate have gone down, somewhere in the neighborhood of 30% to 40%, according realtor Steve Ekovich of the Tampa office of Marcus & Millichap, and insurance is more available.

Look at the figures released by the National Association of Insurance Commissioners. In Louisiana, for every $100 of residential property insurance, the homeowner paid, on average, $1.006. In Florida, a similar homeowner paid only 69.3 cents. Louisiana has, hands down, the most expensive property insurance rates in the entire U.S. Yet Florida has much more exposure. Why?

Simply put, Florida officials, from the Governor on down, have made insurance affordability a front burner issue. In Louisiana, it has been little more than a blip on the radar. The Louisiana legislature began meeting just this week, and newspapers across the state ran stories listing the state’s top issues and concerns. Insurance wasn’t mentioned. Louisiana is a state with the highest automobile and property insurance rates in the entire comity, yet not one solution was suggested by Louisiana insurance officials or legislators.

Like Louisiana, Florida has a Citizens Property Insurance Company that is state created and sells to those homeowners who cannot find insurance anywhere else. The difference is in legislative support. From day one, the Florida Company has received state funds on a regular basis to build up reserves. By properly managing the company, Florida Citizens has almost $ 4 billion in cash in the bank to pay claims. There is also in place a bank line of credit and proceeds from municipal bonds that put total available funds at close to $7 billion.

Florida has also created a Hurricane Catastrophe Fund to back up and reinsurance losses for both Citizens and other private insurance companies operating in the state. This year, Citizens purchased nearly $9.8 billion in coverage. So all tolled, the Florida state created company has the ability to handle claims of up to $16.8 billion.

So how does Louisiana stack up? Well, for starters, due to inept and corrupt management before Katrina hit, no back up funds were arranged, and Katrina and Rita claims now exceed well over $1 billion. There was only minor reinsurance in place when the two major storms hit in 2005. The company was recently tagged with a $95 million legal judgment for failing to pay claims on time, and the former CEO is serving time in jail for misappropriating for his personal use hundreds of thousands of dollars. There is no wonder why the company, created by the legislature and overseen by the Insurance Department, has been called the biggest financial disaster in Louisiana history.

There have been eight major hurricanes that have hit Florida since their legislature created Citizens. Yet 40 new companies have come into Florida to sell property insurance, and ten of their companies sell windstorm coverage right along the most exposed areas of the Florida coast. But to qualify for the available insurance in these storm-prone areas, strict building code requirements are in place. The roofs of such insured homes must have been updated since 1996. And all window protection, including required shutters, must meet specific state and local regulations.
Has Florida solved its property insurance problems? Hardly. Increasing costs and continuing hurricane exposure makes any effort to control insurance rates all the more challenging.

The difference between Florida and Louisiana is one of effort and priorities. The Florida Insurance Commissioner is lobbying hard for a national catastrophic program for gulf coast states. Florida congressmen are pushing a number of programs in Washington. The legislature meets regularly to discuss insurance issues, and Governor Scott makes no bones about the fact that insurance issues will be at the top of his legislative agenda.

There is a proactive effort in Florida to protect consumers. Here’s what the Miami Herald said this week about current Insurance Commissioner Kevin McCarty: “He has not hesitated to take on the insurance industry when he thought consumers were being scalped.” The new House Speaker said this week that property insurance issues are of huge concern to Florida legislators. “This is a very complex issue and I hope we see some solid solutions come forth, but it won’t be easy,” he said.

No, it won’t be easy, but there seems to be a major good faith effort by Florida officials to keep affordable insurance front and center. In Louisiana, property insurance issues have faded away and are barely a blip on the perennial screen, with little comment or concern expressed by any public official. So is it any wonder why Louisiana property owners continue to pay the highest rates in the nation?

Louisiana business and homeowners, when you look across the board at all the higher insurance costs they are absorbing, are paying some $3 billion more than if they were paying the national average of such costs. Think what an additional $3 billion in the Louisiana economy would mean to the economic vitality of the state. So why isn’t more being done by Louisiana officials? A good question to be asking as election season approaches.
*****

“It’s not hurricanes that are causing high insurance rates, but bad government policy,”
Policy analyst Michelle Minton
Peace and Justice.

Jim Brown

Jim Brown’s syndicated column appears each week in numerous newspapers and websites throughout the South. You can read all his past columns and see continuing updates at www.jimbrownusa.com. You can also hear Jim’s nationally syndicated radio show each Sunday morning from 9 am till 11:00 am, central time, on the Genesis Radio Network, with a live stream at http://www.jimbrownusa.com.