While returning from a meeting in California with the Property and Casualty Insurers of America, Governor Blanco made a rather provocative statement in a telephone interview with a reporter. Here is her statement: “I told (the insurers) that we want them to come in and fill the voids, or else (our) state government is going to do something like Florida has done.”
To understand the magnitude and potential consequences of Governor Blanco’s comment, one first has to understand exactly what Florida “has done” in its recent special session on insurance.
First, Florida took its insurer of last resort—the state-created Citizens Property and Casualty Insurance Company—and made it a direct competitor with the private insurance industry. The Legislature removed a 56 percent rate increase for Citizens that was scheduled to go into effect, and retroactively removed a 12 percent increase that went into effect January 1 of this year. They gave Citizens permission and encouragement to expand its policy limits and write policies in lines of insurance from which it had previously been barred. Additionally, if Citizens gets hit with losses (a strong possibility for an undercapitalized carrier), every property and casualty, general liability, automobile, and workers comp policy in Florida will be assessed a fee until Citizens’ losses are paid. State officials in Florida profess the belief that a surge in underwritings by a greatly under-capitalized, state-backed competitor will force the private insurance industry to reduce its rates in order to compete with Citizens for a market that is rife with open-ended risks.
Second, the Florida Legislature greatly expanded the role of its Catastrophe (Cat) Fund without putting any cash into its coffers. The fund—originally created a decade ago—slowly accumulated a reserve of $6 billion in its first 10 years of existence. The hurricanes that struck Florida in 2004-2005 bankrupted the fund and forced the state to put $715 million into it, as well as floating a bond issue backed by policy assessments to make it solvent. In the recent special session, the Legislature added another $16 billion layer to the fund, putting the state/citizenry on the hook for approximately $35 billion if more catastrophic storms come Florida’s way—which they certainly will at some point.
Basically, Florida’s governmental leaders walked into the weather “casino” and bet $40 billion or more on red. If the hurricane winds blow, they will be incapable of paying off the losses without massive assessments on almost every insurance policy in Florida and perhaps significant tax increases on top of that. If that happens, almost all forms of insurance in Florida will increase drastically in cost, and the fiscal stability of the state will be called into question.
When Governor Blanco—or members of our Legislature—proclaim that they harbor intentions to “do what Florida has done,” everyone should understand clearly what they are talking about. It means that they plan to take our “insurer of last resort”—Louisiana’s Citizens Insurance Company that was copied from Florida—and allow it to take on a huge book of business and compete directly with the private insurance industry. If that happens, every insurance policyholder in the state will be at risk for paying huge increases in many lines of insurance if Citizens again encounters significant losses. As Citizens’ book of business swells, its ability to get critical reinsurance will degrade, putting taxpayers and policyholders even more on the hook.
If Governor Blanco wants to join Florida at the tables in the weather “casino,” she does so at your peril and mine.
(This column was written before the Florida tornado tragedy)
This is an outstandingly written and well presented piece of jouralism. (No screaming. Just the facts and consequences).
Thanks
Written by Raymond Brady
on 2/6/2007
After reading this article it is clear one or two scenarios are at work:
1) The author does not understand how our federal system works, that is States fight in D.C. to get some of the annual $10 Trillion dollar budget give-away. I'm not saying this is a good model, but that is the way Washington D.C. works, and Louisiana, with its small congressional delegation, is not going to change it. We must play by the rules they make, and rule 101 is: do what is best for your local economy, and if you go broke, the feds will have to bail you out. There were federal bailouts for New York City when it declared Bankruptcy, and California after the '89 Earthquake - just to cite 2 examples.
2)The other conclusion is that the author is a paid lobbyist for the insurance industry. Anyone with a modicum of objectivity needs to look at this industry's profit margins over the years and note the legal fact that insurance is specifically excluded from the Sherman/Anti-trust Act. Moreover, when the CEO's of insurance companies do declare bankruptcy, it is the Joe Blow Taxpayer who foots the bill, as the feds have bailed out numerous "failed" insurance companies.
If we in Louisiana do not get saavy about the federal gvt. game fast, there will be no economy left in La. to worry about rebuilding. As anecdotal evidence I cite Freeport McMoran's departure, and Pan American sale of its downtown offices.
Sen. Vitter was most correct in writing the President to say that if the Administration does not fulfill its promises to this State, then there will be no reconstruction. That statement was directed to the incompetent Corps. Second in line for criticism is the insurance industry, that has prevented rebuilding by trying to match Exxon Mobil's profits.
We either unite and fight in D.C. for our fair share(on mineral royalties for example), or would the last person please bring the fleur de lis to Houston.
Written by R.E. Lee
on 2/5/2007
Don't have time to really get into the issue, but we need real insurance reform in Louisiana. The first place to start is to end the policy of letting insurance related indusrties donate to candidates for the office of Insurance Commissioner. It appears to me that the "Insurance Rating Board" is simply for sale.
The insurance rates in this state are so high it would save me a lot of money by moving my business to MS or TX.
Next to education, the biggest problem we have in this state in the insurance disaster. This is closely followed by the condition of our roads.
Every citizen should take periodic trips to other places to have a reference point. The reason that our state is in the condition its in is becaues the citizens simply don't demand higher standard.
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