How Bad Can Insurance Climate get?

 

Thursday, December 10, 2009

Baton Rouge, Louisiana

THE WORST OF TIMES FOR LOUISIANA INSURANCE

Remember ole’ Calypso Joe doing the limbo and singing in that deep voice”¦”How low can you go?”Â  Few would be surprised if they learned he was singing about that state of insurance affairs in Louisiana.   To many observers, 2009 cannot end quickly enough.  Each month of the year has produced more bad news for Louisiana property owners.  Rates have continued to rise and the Insurance Department has been mirrored in one law suit after another.  But November has proven to be the cruelest month.   Will the bad news for Louisiana policy holders get worse and will the bottom continue to drop out in 2010?

Just this week, new figures were released by the National Association of Insurance Commissioners that rated Louisiana as having the highest automobile insurance rates in the country with an average yearly cost of $1,262.00.  That’s some 25% above the national average. An even more disturbing figure shows that Louisiana also has the least affordable auto insurance costs compared to gross income.  Where the percent cost in most states averages around 3.5%, Louisianans pay 6.72 percent of their average income for automobile insurance.

And Louisiana drivers face even more bad news when a new law kicks in requiring more coverage on January 1.  Forty per cent of motorists who buy minimum liability coverage will see rates jump by at least 14%.  Insurance officials dismiss these high costs as not being that “out of the norm,” saying only 12% of Louisiana drivers are uninsured.

 Ask any cop on the traffic beat who pulls over drivers for traffic violations.  They will tell you the numbers are   much closer to 30%, and this figure has stayed consistent for a number of years. Yet the fact that driving a car has become unaffordable to many Louisiana drivers has received scant attention from both the Insurance Department and the legislature.  Aggressive enforcement action in other states has led to a crack down on uninsured drivers, drunken drivers, text messaging and cell phone using drivers and teenage drivers. The proof is in the pudding.  Rates are dropping throughout the country, but going up in Louisiana.

Louisiana is also being accused of dropping the ball in regulating the largest insurer operating in the state.  A.I.G., both directly and through re-insurance has a major presence in Louisiana selling various insurance products that directly affects thousands of Louisiana policy holders.  This column has written at length in the past about the financial shenanigans of A.I.G. and the dangers of too little regulation by Insurance regulators.

Lawsuits have been filed in a number of states, most recently in California, that would force A.I.G.  to keep readily available assets in the respective state when potential claims were likely to be made.  Louisiana law requires any insurance company operating in Louisiana to estimate future claims and set aside enough assets to honor them.  But if other states seize all the assets, Louisiana policyholders could be left out in the cold since no action is being taken in Louisiana by insurance officials.

The legislative auditor, charged with auditing all Louisiana state agencies, issued a highly critical financial review of the Louisiana Insurance Department in recent weeks.  Some $30 million dollars was handed out to five insurance companies to encourage them to sell more property insurance in Louisiana.  The concept of trying to buy off companies to sell insurance was questionable to begin with. But the whole matter was made worse in that no contracts were signed until six months after the money had been paid out.   Taxpayers were also stuck with a $500,000 bill for legal and auditing fees incurred by the Legislative Auditor to force the Insurance Department to hand over legally required documents.  All in all, a great deal of money wasted, and, of course, paid for by Louisiana taxpayers.

And then there is Citizens Property Insurance Company.   Created in 2003 by the legislature at the request of the insurance department, Citizens has proven to be the biggest financial disaster in the state’s history.  Rarely a month goes by when there are not more allegations of mismanagement.

Just last week, the legislative auditor stated that Citizens has “lax or nonexistent controls” over company assets.  Auditor Steve Theriot also stated that auditing Citizens “was like pulling teeth in some cases” to get basic financial information.  “We kept getting roadblock after road block,” Theriot also said he “questioned the reliability” of data turned over to his office from Citizens computer system.

Citizens is also fighting, and no doubt will lose, three class action law suits filed because of failure to pay claims timely and underpaying claims following Hurricane Katrina.  As the legal skirmishes go on, interest continues to run and Citizens faces potential liabilities of over $200 million. The only company that faces such exposure for failure to pay claims is Citizens, the state run company.  Private companies were able to follow the law.  So again, the big losers are the policyholders and taxpayers.

And while all these indiscretions and financial calamities were taking place at Citizens, the company continues to ask for more rate increases.  Hurricane season just ended with no storm activity. Cost of insurance is dropping all over the gulf south. Florida’s average property insurance rate dropped, according to Governor Charlie Crisp, by 16%.  Louisiana Citizens Insurance Co. recently asked for a 10% rate increase. 

After all the criticism of mismanagement leveled at Citizens, how did the company’s board of directors respond?  They gave their CEO a 5% raise bumping him up to $233,100 a year with a $1,500 expense allowance.  No wonder there have been a continuing stream of calls for Citizens to be abolished.

And the only good news out of the Citizens debacle is that there is a major effort being undertaken to do away with this state created company that has done so much harm to Louisiana taxpayers. Just this week, the Commission on Streamlining Government, at the urging of State Treasurer John Kennedy, unanimously voted to recommend that Citizens be dissolved.  The commission’s recommendations will be forwarded to Governor Bobby Jindal and legislative leaders next week.

Louisiana is at the bottom of most national lists compared to other states.  But a poor deep southern state having the highest insurance rates in the country for drivers, property owners, and in virtually every other category?  When it comes to setting legislative priorities for the Governor and the legislature in 2010, it should be a no brainer. Until the present insurance mess is cleaned up and rates begin to fall, Louisiana’s economy will continue to languish.

                                                                                          *****

“When in charge, ponder”¦.When in trouble, delegate”¦.When in doubt, mumble.”Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 

 Dr, Jim Boren

 Peace and Justice. 

 Jim Brown  

jim Brown’s weekly column appears in numerous newspapers and websites throughout the south.  To read past columns going back to 2002, go to www.jimbrownla.com.