La. Gov. Seizes Upon Popular Proposal for Insurance Bailout

October 17, 2006

For Louisiana Gov. Kathleen Blanco, the train often appears to leave the station with her jumping on the caboose.

She frequently is late to take positions on issues gathering political steam and regularly latches onto popular issues only after legislators or other leaders have stumped on the matter around the state.

A recent example? It took the governor an entire legislative session before she realized Louisiana residents overwhelmingly backed consolidation of the fractured system of levee boards. Blanco backed the reform initiative in a second session once there was traction for the effort.

The latest train is a growing push for homeowner insurance relief.

Several lawmakers repeatedly called for a bailout of the state-run insurer of last resort, the Louisiana Citizens Property Insurance Corp., to help reduce rate hikes for homeowners and businesses around the state, but Blanco refused to back that in the last legislative session. Her top floor leader lobbied against it and tweaked the slight relief developed by the Senate.

The din of complaints, however, grew louder after the session’s end. State Treasurer John Kennedy seized upon the issue, both Democratic and Republican legislators asked for a special legislative session, and Republican lawmakers started working behind the scenes to call one without the governor’s backing.

So, Blanco jumped on board in favor of a Citizens bailout, rolling out a plan last week – four months after the legislative session ended.

“It would be fair to say the governor came late to the party, but I don’t want to criticize her for that. I’m glad she’s here,” Kennedy said.

Rather than acknowledge the governor is a bit tardy in getting on the bandwagon, administration officials say Blanco has always wanted to provide insurance relief but was waiting until the state’s financial picture became more clear.

“This decision has been made for a while regarding Citizens,” said Blanco’s Commissioner of Administration Jerry Luke LeBlanc.

“The insurance issue is important, it’s critical. The governor recognizes that,” he said.

Citizens borrowed $1 billion to pay off claims after hurricanes Katrina and Rita. The company – established by the state to offer property insurance to those who can’t get it on the open market – is assessing private insurance companies a regular fee they can pass onto all their Louisiana customers to pay off Citizens’ borrowing.

Property insurance policyholders statewide already were hit with a 15 percent insurance premium surcharge to help prop up Citizens. That fee ends March 31.

A 3.6 percent premium boost is expected January, followed by another 6 percent to 7 percent hike a year later and continuing until Citizens’ debt is paid – on top of any additional rate hikes the individual insurance companies have doled out since the storms, said Kennedy, who sits on Citizens’ board of directors.

Any money used to pay down some of Citizens’ borrowing would lower the assessment on insurers and people and businesses who carry private or Citizens insurance.

Disagreements have already emerged, however, on the road to rate relief.

Blanco’s proposing using part of an expected budget surplus from the fiscal year that ended June 30 and a slice of a $150 million emergency fund created by lawmakers to provide short-term relief for Citizens – and to send refund checks to cover the one-time 15 percent rate hike.

To cover the rest of Citizens’ debt, Blanco proposes selling the remainder of the state’s share of the national tobacco settlement rather than continue to receive incremental payments over time.
Selling the tobacco settlement and using the money on insurance would require approval from two-thirds of the Legislature – either in a special or the regular legislative session – and from the state’s voters.

But the surplus is expected to be anywhere from $400 million to $800 million when it’s formally recognized in the coming months. Kennedy and some lawmakers say the surplus, plus the entire $150 million emergency fund could be used to shore up Citizens.

If additional dollars are needed, Kennedy said there are other bond refinancing arrangements that could fill the gap, rather than selling the remaining 40 percent of the tobacco settlement. Whatever arrangement is reached, Blanco likely will get the credit for helping to keep property insurance costs a bit lower – as long as she grabs onto the winning plan.

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