LA Senate's increased insurance regulation to drive up costs

The legacy of populism in Louisiana includes the belief that Louisiana should get people from other places to pay for the preferences enjoyed by Louisianans. We got another airing of that philosophy last week in the Senate Insurance Committee as it debated bills relating to insurance coverage and premiums.

One, SB 693 by state Sen. Robert Adley, would abolish the ability of insurance companies to file for rate increases up to ten percent without having to go in front of the gubernatorially-appointed Louisiana Insurance Rating Commission. All that does is improve the chances for politics to be injected into the process: all increases regardless of degree now must first face vetting by actuaries in the Department of Insurance and be authorized by it.

Informed that having the “flex-band” option attracted policy writers to the state (the increased competition from which lower rates), Adley dazzled those present with his ignorance of economics by stating, “Companies came, made money and are leaving again. They don't need us.” I wonder if that’s the attitude Adley has in his business and, if so, it’s a wonder he’s been in it so long.

Adley doesn’t understand that business can only make money when it has customers, so the more the better, but, more importantly, they want a customer base on which they can generate a profit because, guess what, if they can’t, firms go out of business. These companies will stay if they can get their rates adjusted to a level that accurately reflects the risk inherent in the properties they insure. The last thing the state needs are political appointees reviewing every rate increase and deciding not to grant them because people think insurance rates are going too high. What happens then is insurers simply stop coming to the state.

That’s already been happening, and that consequence was the subject of another bill, SB 651, by Sen. Reggie Dupre. This bill would remove the requirement that the state-owned insurer of last resort, the Louisiana Citizens’ Property Insurance Corporations charge premiums at least 10 percent above a price of a basket of premiums from private firms. This is to allow a greater bonding capacity and to prevent driving out of the state private firms.

But rather than having this greater stability and private insurance presence in the state, Dupre seemed to be more concerned about rapidly, but justifiably, escalating premiums and private insurers bailing out of the state than these issues. What he, nor Adley, seems to understand is that if Louisiana builds on its reputation of being business-unfriendly with the actions contemplated in their bills, that these insurers are going to leave the state, forcing the state-owned insurer to take on more and more properties at higher and higher rates.

And that’s bad news, because as the voice of reason on the committee Sen. Julie Quinn pointed out, the state-backed approach is nothing more than socialized insurance because deficits in it are made up by assessing additional premium costs on holders of private insurance. If the state won’t grant these increases to pass on to consumers, then these private insurers will leave the state, too.

The solution is simply to let the market prevail, which means getting over the idea that you can live anywhere you please without possibly paying exorbitant rates because of living in a risky area. It is not some Louisianans’ given rights to live wherever they want and expect ratepayers in the rest of the state or the remainder of the country to subsidize them (the same thing goes with levees and flood protection); nobody’s putting a gun to their heads and making them live in the places, either. If rates skyrocket, so be it; that’s the price some pay for living where they want, and it’s unfair to pass along so much of the responsibility for making that choice to others.

Fortunately, that bill did not make it out of committee but unfortunately Adley’s did, and not only that but then today squeaked through the entire Senate with some curious supporters – probable candidate for Insurance Commissioner James David Cain, announced candidate for Secretary of State Jay Dardenne, and stalwart fee-market supporter Max Malone. The House needs to stop this bill and instead consider reforms that reduces the state’s exposure to the insurance business and creates a friendlier environment that will cause private insurers to want to write policies in Louisiana.