La. Lawmaker Wants AG’s Opinion on Gov.’s Insurance Incentive Plan

April 27, 2007

A lawmaker from Acadiana has asked Louisiana’s attorney general to determine the constitutionality of Gov. Kathleen Blanco’s plan to grant up to $100 million in state money to private insurance companies.

It’s a last-minute request from Rep. Troy Hebert, D-Jeanerette, about a bill that’s sure to spark debate in the legislative session that starts April 30. He asked Attorney General Charles Foti for a ruling about an incentive plan aimed at property insurance companies that has the backing of Blanco and Insurance Commissioner Jim Donelon.

Hebert questioned the legality of the state giving public money to private corporations. He said the state constitution prohibits funds, property or “anything of value” from being “loaned, pledged or donated” by the state to a private person or corporation.

Hebert said in his letter to Foti that he wants “an expedited opinion so that the Legislature does not spend a great deal of time debating an issue that may not be constitutional.”

The bill is sponsored by Rep. Karen Carter, D-New Orleans, chair of the House Insurance Committee. Her bill would set aside up to $100 million in state money and invite insurance companies to apply for amounts ranging from $2 million to $10 million. To qualify, a company must have at least $25 million in assets – a restriction that Donelon has said would weed out fly-by-night operations.

Qualified companies would have to match the state money, and 25 percent of their new policyholders would have to be from the high-risk homeowners now insured by the Louisiana Citizens Property Insurance Corp. A company would also be required to agree to insure homeowners for at least five years.

The state can recover its money if the company fails to abide by terms of the proposal, Donelon said. The $100 million pool could mean an additional $400 million in insurance capacity for homeowners and commercial property owners, Donelon said.

The plan’s goal is to reduce the number of properties now insured by Citizens, the “insurer of last resort,” which charges rates higher than private firms and writes policies for homeowners who can’t find insurance elsewhere. Before the 2005 storms, Citizens had 125,000 policies; it now has over 150,000, the state’s fastest-growing and third-largest insurer, behind Allstate Insurance Co. and State Farm Insurance Co.

As Citizens grows, so does the amount of risk the state-backed company carries if another hurricane hits Louisiana.

Blanco said she considers the $100 million incentives idea a long-term plan that will lure more companies to Louisiana, thereby increasing competition, lowering rates and reducing the amount of Citizens’ risk.

“We just have to find ways to spread our risk, attract new companies – do that, and we’ll all be better off in the long haul,” Blanco told reporters.

Donelon said there are precedents for legislation that sends public money to private companies. He cited the Legislature’s approval in December of $300 million for economic development and infrastructure incentives for a German company considering construction of a steel mill in St. James Parish.

Donelon said he welcomed an opinion from Foti on Carter’s bill, which was drafted by lawyers and deemed constitutional by faculty of LSU’s law school.

On the Net: House Bill 678 can be viewed at
Information from: The Times-Picayune,

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