AN INSURANCE PLAN THAT CAN SUCCEED

The chatter about Louisiana’s property insurance challenges will intensify as the regular session of the Legislature approaches.

There will be three schools of thought regarding the best way to address the crisis: One will advance an agenda geared toward punishing the insurance industry or forcing it to write policies at a premium level that many carriers will find unprofitable. Another will push for lower premiums by requiring the state to take over a considerable amount of the commercial and residential windstorm-related risks. A third approach will focus on growing the number of carriers writing property insurance in Louisiana and spreading the risk within the private sector instead of banking on state guarantees for losses.

Putting state government directly into the insurance mix could have severe consequences.

The same holds true for passing laws that will shoe-horn more policies into our state-run property insurer of last resort, Louisiana Citizens Property Insurance Corporation. The bigger market share Citizens inherits, the more all policyholders in Louisiana are on the hook for its potential losses.

The most ideal option is to encourage more property insurance carriers to write policies, thereby spreading the risk more widely within the private sector. That can be done by developing incentives for the missing link in the industry in Louisiana: mid-sized regional carriers.

Regional carriers are not the “big boys” in insurance. They are smaller than national carriers, but many are very good companies with strong A.M. Best ratings and good underwriting, investment and claims operations. Carriers like these have been missing in Louisiana since Hurricane Betsy, but a plan is being developed that may succeed in recruiting them to help alleviate our crisis.

Commissioner of Insurance Jim Donelon has been working with a small group of individuals—none of whom get a paycheck from a property insurance company—to develop an incentive known as a surplus match.

Under this proposal, the state would develop an incentive fund of roughly $100 million to be used to match participating carriers on a dollar-for-dollar basis to generate the surplus requirements necessary to write policies in Louisiana. A $100 million pool of state dollars matched by $100 million from private industry would leverage as much as $600 million in new property insurance underwriting.

To put that in perspective, Citizens is writing about $140 million in current annualized premiums—an amount that could hit the $200 million level this summer. The surplus match program has the potential to significantly depopulate the “market of last resort” in Citizens and bring more competition to Louisiana’s entire property insurance market.

To get the surplus match dollars, interested carriers would have to apply to and be qualified by the Louisiana Department of Insurance. They would have to agree to use a significant portion of both their dollars and the state match to depopulate Citizens. There would be criteria established for minimum capital requirements, and the carriers would have to be admitted to write in Louisiana.

One important bonus is that the plan will create jobs in Louisiana in addition to helping to alleviate our property insurance crisis.

Neither of the other two alternatives that will be pushed during the legislative session will keep risks away from taxpayers and policyholders, depopulate Citizens, or foster more competition in the property insurance market. The surplus match proposal stands an excellent chance to succeed on all of those fronts. It deserves the support of the governor, the Legislature, and policyholders throughout Louisiana.