Legislators Need to “Step Up” on insurance problems

Wednesday, March 3, 2010

Baton Rouge, Louisiana

TIME TO ASK SOME TOUGH QUESTIONS

ABOUT LOUISIANA INSURANCE

A number of Louisiana legislators are feeling increasing heat back in their districts about why Louisiana continues, year after year, to have the highest insurance rates in the nation.  A small deep southern state should be way down the list of most expensive states.  That’s the case across the board in states from Texas across the gulf coast and up the eastern seacoast to North Carolina.  Property insurance is somewhat higher because of the proximity to the hurricane prone gulf.  But no state, in the south or elsewhere across the country, continues to have such high, across the board insurance costs.  So legislators, for good reason, are wondering: Why?

In the coming weeks, a joint legislative committee on insurance, made of insurance committee members from both the House and the Senate, will begin a series of hearings to try to make sense of why the present insurance climate is so out of whack.  The hearings at the state capitol in Baton Rouge will convene beginning in the middle of March and continue through the spring legislative session. State Senator Troy Hebert from South Louisiana, and Representative Chuck Kleckley from North Louisiana, will head up this joint effort.

The initial focus will be on Citizens Property Insurance Company, a state created disaster that has been mired in scandal, indictments and conflict from the get go.  When all is said and done, Citizens will have cost Louisiana taxpayers and property owners well over $2 billion dollars, No wonder it’s been called the worst financial disaster in Louisiana history.   Yet those overseeing the Citizens operations continue to operate in a manner that should raise some pointed questions by legislators.

Why did the most recent audit of Citizens, issued a little over a month ago, conclude that the financial records were so disorganized that the auditor could not issue an opinion as to the accuracy of Citizens’ records?  The audit also concluded that Citizens continually violated Louisiana laws that set the company up initially, and that, in the auditor’s words, the company had “lax or nonexistent controls” over its assets.  Times Picayune columnist James Gill concludes that “Citizens has elevated expense account fiddling to an art.”Â 

 Where the average salary nationwide of the CEO for a smaller property and casualty company the size of Citizens is less than $200,000 a year, the Louisiana company pays its top guy $250,000. And Citizens continues to refuse to settle several multi-million dollar class action lawsuits they are certain to lose, that will cost Louisiana policy holder’s millions more. So the Citizens gang needs to answer a number of sticky questions about their lax operations and poor oversight.

And why are property insurance rates so high?  Louisiana continues to lead the country with the highest homeowner rate of an average of $1,392.00.  The U. S. average rate is $690.62.  Louisiana rates continue to climb, while rates in other hurricane prone states like Mississippi, Florida, and Texas are dropping.  Why?  What are legislators and regulators in those states doing that are not taking place in Louisiana?  In Texas, where losses have been calculated by the national Properly Claims Services, the company concluded that “No other state has even come close to all of the weather catastrophes and insured losses that Texas has gone through over the last two years.”Â  So why are the property rates in Texas going down, where Louisiana, with little storm activity, they continue to go up? More tough questions to ask. 

Then there is the big elephant in the room”¦.AIG.  No one wants to bring up the fact that the largest insurer operating in Louisiana is in big financial trouble. If the plug gets pulled on AIG, hundreds of thousands of Louisiana Citizens will suffer losses.  There are bright financial minds in the US who feel AIG is in slow-motion liquidation.  The company has already received $180 billion from the taxpayers, to pay off losses from credit default swaps.  What are they?  Well, Warren Buffett calls them “financial weapons of mass destruction,” yet insurance regulators just stood by and allowed these radioactive insurance products to be sold.  Then, just to rub it in, these same AIG predatory geniuses who helped cause the world economy to crater paid themselves billions of your money in bonuses.

Now insurance commissioners will holler that they really have no responsibility.  But that’s  the problem.  Just this week, former Federal Reserve Chairman Paul Volcker said that the near-collapse of AIG was the result of “ineffective state insurance regulation.” Treasury Secretary Timothy Geithner agrees with Volcker, saying that “insurance regulators did not act to constrain the risks AIG was taking.”Â  And it still gets worse.  Lawsuits have been filed in California to enjoin AIG from transferring any assets out of the state. So should Louisiana do the same?  Or will Louisiana policyholders be left holding the bag for both AIG’s mismanagement and insurance regulators failure to regulate?

We haven’t even begun to look at Louisiana auto insurance (the highest rates in the country), health insurance (also at the top of the national list), and the lack of any effective consumer and policyholder protection.  Louisiana is one of the few states that do not fund an independent consumer protection office that reviews company insurance rates.  There are also many questions about the “Hanover deal,” where this major national company is being allowed to pull out of the state and shift numerous property insurance polices to a small Florida Company that has been in business just a few years.

So the legislative hearings have much ground to cover and many question to pose.  All this is not just academic.  The nation’s highest insurance rates are one of the main reasons Louisiana is in such economic doldrums.  Legislators have quite a challenge ahead.  If they sit back and do nothing, they accept the premise that the companies involved, and the state regulatory system involved, are “too big to fail” Right now, there are a number of supposed “watchdogs” who just don’t get it. Here’s hoping investigating legislators don’t fall into the same category.

“The state can be and has often been in the course of history the main source of mischief and disaster.”
Ludwig von Mises

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 is past columns and see continuing updates at www.jimbrownla.com