January 24 2007

Getting a Grip on Insurance Beats Griping

While many property owners claim to be abused by insurance companies since the hurricanes, the insurers, in turn, have been getting beat up in what was once, to them, the friendly confines of the State Capitol.

There is a direct connection, of course, since legislators are venting the anger and frustration they are getting from constituents, who are finding recovery made much harder, if not impossible, by difficulty in settling claims or getting continued coverage, even for undamaged property, at afforable prices, or any price.

Insurance executives have lobbyists to sit and take the abuse. Residents, on the other hand, might ask what their elected representatives have done, besides spew rhetoric and veiled threats. In the year and a half since Katrina and Rita, a legislative session, three special sessions and an insurance commissioner's election have produced little more than words to address the economic crisis that, to some degree, has touched every corner of the state.

Part of the lack of action is due to lawmakers recognizing the dilemma of getting tough with big business, especially since their historic response toward same has been to roll over and wag their tails. Even one who speaks so passionately for "the little man," state Rep. Troy Hebert, D-Jeanerette, says of the big man, "I want to beat 'em over the head but I don't want to kill 'em."

The oil industry will put up with an occasional mugging in Louisiana, because there is no oil in Nebraska. Not so for insurers, as evidenced by the number who have voted with their feet on the future insurability of this region.

A single state Legislature is not going to bring a multi-national industry to heel, or even pay much attention. A federal jury is a different matter. One recently ruled that State Farm owes a Mississippi couple $2.5 million in punitive damages because it refused to consider the homeowners' claim that Katrina's winds badly damaged their house before her rising waters finished it off. Barring a successful appeal, the company could be settling hundreds or thousands of similar "wind vs. water" cases in Louisiana. That would spell relief for many homeowners but also set a precedent that could only drive rates higher still.

While the federal courts will deal with that question, back at the State Capitol, it's past time for debate on some realistic solutions that go beyond rhetoric.

Only now are some viable proposals being put on the table, though consumers and politicians will be wary of the source: the insurance industry itself. Recognizing the need for cover, insurers have come surrounded by allies from business trade associations--bankers, Realtors, contractors, engineers, even car dealers and petrochemical firms--who have banded together as the Council to Insure Louisiana.

Of a long list, its two key proposals are to abolish the Insurance Rating Commission and to allow companies to set higher deductibles for the hurricane zone than for the rest of the state.

One could more easily defend the need for an appointed body to approve insurance rate increases if any other state had one, and none do. The commission already has no say over increases up to 10 percent per year. Beyond that, commissioners can only delay most proposed rate hikes until companies threaten to take them court, at which point they usually fold.

It also worth debating whether companies can charge a higher wind-and-hail deductible for coastal Louisiana than for areas not threatened by hurricanes.

If companies want more flexibility, so do legislators who propose rescinding or suspending the rule that state-backed Citizens Property Insurance Co. must charge 10 percent above the market average. Legislators argue the move would not stifle competition, because there is none, as most private companies are refusing to write new business in much of South Louisiana.

There are other smaller fixes and big ideas--such as a state or multi-state catastrophe fund--that deserve airing in a special session devoted to insurance.

As unpopular as the insurance industry may be right now, their proposals, along with those some legislators are now putting forward, could frame an informed debate on insurance reform, instead of more moaning, groaning and wailing heard up to now.