Donelon campaigning aggravates insurance problem

Louisiana Insurance Commissioner Jim Donelon has got himself put between a rock and a hard place courtesy of a silly state law, but that’s not stopping him from using the situation to try to boost his campaign fortunes.

Last week, the unelected official who ascended to his place when his predecessor resigned, received unpleasant news from Allstate Insurance, representing one-fifth of home insurance policies in the state. It wanted to drop hail and wind coverage from a little over seven percent of its homeowner policies, presumably in the high risk area on the coast. The trouble was, a law unique to Louisiana prevents any company from doing this unless there have been two catastrophic events within a three-year period. If it could not follow through, the firm said it would exit the market.

Simply, even if the company is reporting decent profits, it fears that another hurricane striking the coast, which would then qualify it stop writing such policies, this or next year could wipe out those profits and eat into reserves. Thus, it would rather leave the market. If that happened, this potentially could foist huge costs on Louisiana taxpayers because, since no new underwriting by major firms is occurring for those kinds of policies, those homeowners might be forced into having policies written by Louisiana Citizens Property Insurance. These are more expensive, by law, and if a disaster does occur and it must pay out, other ratepayers or even taxpayers would be on the hook to subsidize payouts.

This scenario doesn’t necessarily have to happen. If smaller insurers are willing to step up, they might get some chunk of this business. However, they probably would come in at a substantially higher rate. And, since the conflict is likely to drag out past hurricane season, it may become moot since Allstate talks of doing this for next year’s policies. That outcome would entice major insurers possibly to write new policies. Perhaps most frustrating to Donelon, there’s nothing he can do about this because only the Legislature could amend this law; he has no power to make exceptions to it.

Yet, he has rattled sabers about the situation, declaring the state intention to leave is “blackmail” and trying to introduce class warfare into it by noting the profits of the company. It’s grandstanding that is unneeded and likely prompted by the election he will contest Sep. 30. Not having been elected to the office and thus possessing little legitimacy, by talking tough Donelon may think he’ll come out looking like a champion for insurance customers, many who will vote.

Perhaps, but it also shows that he’d just as soon ratchet up the crisis through a war of words than to quietly work behind the scenes. Blasting the company only aggravates a conflict which could lead to a major loss of choice for Louisiana consumers. (Separately, it shows how counterproductive this law is and reminds everybody that public policy choices must be made; is it the responsibility of homeowners’ own resources or taxpayers’ subsidies to permit those homeowners to choose to live in certain parts of the state?)

Donelon chose poorly in putting his campaign ahead of his job.