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Florida and Louisiana are hurricane-prone states with similar property insurance problems, but their governors are taking wildly different approaches to fixing the insurance headaches.
Florida Gov. Charlie Crist, a Republican, has led that state’s push to increase government regulation of the insurance industry, setting price controls and publicly attacking insurers who oppose him.
Insurance experts prefer the path taken by Gov. Kathleen Blanco, a Democrat who has teamed with Louisiana’s Republican insurance commissioner in supporting an industry-friendly approach to decrease – not increase – government’s role in the market. Among experts, Blanco’s approach is considered more likely to ease the cost of insurance in the years ahead.
“It’s more tempting, more expedient, to try to address the short-term issues. But it really is an issue that needs to be addressed for the long run,” said Rob Hoyt, professor of risk management and insurance at the University of Georgia.
The policies backed by Blanco and Insurance Commissioner Jim Donelon are theories: changes in state law that are designed – not guaranteed – to lure more insurance companies to Louisiana. They assume those moves will attract more companies and policy rates will fall as competition rises.
Blanco and Donelon insist that no immediate cure exists for double- and triple-digit rate hikes – particularly in coastal Louisiana – and Florida-style solutions would only make things worse in the long term. They say the only way to bring rates down is to remove government regulation from the marketplace, to make the state more appealing to industry.
“I wish I could wave a wand and make rates go down,” Donelon recently told the House Insurance Committee. “But it doesn’t work that way.”
Blanco is backing Donelon’s unusual proposal to offer $100 million in financial incentives to firms that agree to begin doing business in coastal Louisiana. South Carolina has a new $6 million plan that includes tax credits for insurers, but Donelon’s plan is considered the first in the nation that would offer taxpayer cash directly to private insurance firms, much as states offer money to other industries – such as auto manufacturers – to attract jobs.
The industry likes the plan, but Hoyt said incentives probably aren’t the most important factor in solving Louisiana’s insurance troubles.
“You can offer incentives for any business, but if the opportunity to succeed in the long run is not there, its success is going to be transitory and short,” Hoyt said.
On that front, Blanco supports abolishing the Louisiana Insurance Rating Commission, a state body of political appointees that has the power to block insurance companies when they want to raise rates by more than 10 percent. Companies regulated by the commission have long complained that the panel’s powers impede business and should be eliminated.
No other state still has an insurance rating commission.
William Ferguson, professor of insurance at the University of Louisiana-Lafayette, said doing away with the regulating commission is arguably the most important move that Blanco could make.
“It’s actually a very big deal. That’s a step in the right direction – to depoliticize the insurance process is really vital to the insurance situation in Louisiana,” Ferguson said. “Historically, that body has been heavily politicized. It hasn’t served the interest of the citizenry, because the artificial, nonmarket-driven activity has really put a damper on things.”
The six-member Insurance Rating Commission still meets every month, but the state House has already approved Blanco’s legislation to abolish the panel. The measure would take effect July 1, meaning the rating commission’s June 19 meeting could be its last.
All Louisiana homeowners would be affected if the Blanco-Donelon plans are enacted.
But homeowners and businesses in hurricane-stricken coastal areas are the most in need of some sort of relief from jumping policy rates, a prime reason the recovery from the 2005 storms has been so slow.
“The insurance situation has really been an albatross around the recovery’s neck down here,” said Peter Ricchiuti, a Tulane University finance professor who monitors companies in the New Orleans area. “Everyone, from individuals who want to come back to companies that want to expand, finds that insurance is the last great variable.”
House Bills 678 and 960, and Senate Bill 185, are at http://legis.state.la.us/.