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Thursday, January 8th, 2008
IN PROPERTY INSURANCE SCHEME
In days of old, Robin Hood took from the rich and gave to the poor. When it comes to insurance, the Louisiana Legislature and the Insurance Department do just the reverse. They apparently think it is better to take from every taxpayer, rich and poor alike, and give away public funds only to homeowners, who are more likely to be a little better off. If you don’t own a home, either by choice or because you cannot afford to, your tax dollars are taken out of the state general fund to be given away as a gift to those fortunate enough to be a homeowner.  It’s Robin Hood sticking it to the little guy.
The
This ill-conceived program was the brainchild of the Department of Insurance and was sold to the legislature in 2006 as a hook for getting major insurance companies to sell property insurance in the state. The legislature set aside $100 million for grants to go directly to new insurers. Few companies were interested, and only a handful of insurers applied, most of who were planning to enter the property insurance market in
So in an effort to blunt the outrage of numerous homeowners over the highest homeowner insurance costs in the nation, the giveaway program has been dangled as a way to pacify the criticism. But the funds are not a portion of insurance premiums being returned to policy holders. State general fund money is being used that is paid into the state treasury by all taxpayers; whether they are homeowners are not. Since the roads are crowded, why not give a grant to all bicycle commuters? How about a check from the state treasury to everyone who has a driver’s license? They pay the highest auto rates in the country. The same illogic applies.
There may well be constitutional problems here also. Has the legislature gone beyond its authority by arbitrarily passing out state funds to a singled out group of citizens who have no direct relationship as a group to the source of the funds? In other words, it is not legal to give preferences to a whole group of citizens just because they own a home. The money they will receive does not come from the insurance premiums that they have paid, but is a gift from the general fund that every citizen, homeowner or not, pays into. So is it legal to favor a single class? The courts will no doubt have to figure this out.
And if such a program was fair to begin with, about the worst possible way to give homeowners special consideration is to send them a check, which is the method being proposed by the Insurance Department. Think of the huge cost involved in preparing and mailing out checks to every homeowner in the state.  Conservative estimates to prepare the hundreds of thousands of checks is well over $15 million. That’s on top of the seventy one million dollars that will come out of the state treasury.
One way is to give the homeowner a tax credit is to allow for it when a state income tax form is filed. An even better suggestion is to mandate that ever insurance company selling property insurance in the state reduce the amount being charged by fifty dollars, which is the proposed refund. The burden would then be put on the insurance company to apply for the state funds that are being made available. No postage, no work effort by public employees, no cost. Maybe this is just too simple for a state agency to undertake (or understand), but there are a number of more efficient ways to skin this cat than are presently being proposed.
When all is said and done, this poorly though out proposal started out as nothing more than a “share the wealth” program for a select few insurance companies that turned out to be a bust. Now, to placate disgruntled homeowners in the state, tax dollars will flow from the many to help the select few. No other state has even considered such a program. And it is no secret why. It’s bad public policy. But hey. Huey Long is looking down with a smile on his face.
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“Well, fancy giving money to the government
Might as well put it down the drain
Fancy giving money to the government
Nobody will ever see the stuff again.”
–Sir Alan Patrick Hebert
Peace and Justice.
Jim Brown
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Since when has the legislature used any common sense? Indeed, do they have any? They do things that sound good, but are not good for the citizens. Some benefit must flow to the legislators, since that is almost always the focus. When you find out how this benefits some, or all legislators, then you will find the reason it was done. It is all smoke and mirrors, as usual. When will the citizens in this state pay attention? Obviously, not in our lifetime, if ever.
Brian Martin, on January 8th, 2009 at 10:06 am Said:
This is sold as assistance to homeowners, but if you follow the money it is a subsidy for the insurance/reinsurance industry. Using taxpayer funds to cover a portion of the cost of insurance allows insurers to raise premiums beyond what the private market would be willing to pay. In the MS wind pool subsidy, the tax dollars go straight to Bermuda or Lloyds as reinsurance premiums. In LA, I doubt any homeowners gets more in “rebates†than the amount that their premiums have increased.
The numbers I would like to see are the estimated losses compared to the premiums charged. What is happening in all the coastal states is that the premiums have reached the point where it is not economically rational to pay them. If you have a 1 in 50 chance of a major loss but are charged a premium that is 1/10 the value of the coverage, it does not make sense to buy it, but people with mortgages are required to do so.
Richard Trahant, on January 8th, 2009 at 9:02 am Said:
Jim Brown is dead-on right. But you have to consider the strong “private life†ties of the last 2 insurance commissioners to insurance companies and law firms that represent insurance companies. So, the Department of Insurance touts any ostensible bone it can throw to the consumer, like this one.
This proposal really does seem to be a pure equal protection violation.
The only equitable way to handle this would be through the reduction of premiums, and as an underwriter with many years experience, it is my belief that the tried and true actuarial method of measuring losses paid to premium paid will allow the money to go to the proper parties. Decisions of this nature seem to be hurried and not thoroughly researched. This move will not accomplish what homeowners want and need. The insurance market was riddled with problems from the time “money men” changed the time honored way of underwriting to a profit to
depending on interest income to offset losses. Investments worked, until the market began to deteriorate. Coupled with major disasters worldwide as well as in Louisiana, and accompanied by greed, the bubble had to burst.
depending on investment income to offset losses.
I have been in this business for the past 12 yrs. I moved to Florida after Hurricane Katrina. It has opened my eyes to the corruption that is and has taken place in many states. The bottom line is that insurance companies that write business in La. know how the system works. If the insurer’s are not willing to play by the rules that La. judges and politicians have set into place, then they will not make a much profit.