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Less govt proving effective for LA insurance provision

It’s good to know when state government gets something right and how to do even better. The evolution of homeowner insurance regulation in Louisiana over the past three years provides such an opportunity.

A few years ago, in order to insure riskier areas of the state, it altered its means of homeowner insurance provision by creating the Louisiana Citizens Property Insurance Corporation, a state-run insurer of last resort that would write policies where no private sector insurer would go. Unfortunately, a couple of years later before its accounts had built up, the hurricane disasters of 2005 wiped out its resources and led to a state bailout.

The agency also faced internal problems. Cozy arrangements with the insurance industry led to a lack of internal controls that now have brought allegations that its former head Terry Lisotta engaged in fraudulent if not corrupt practices. It also brought mismanagement, most prominently in its record-keeping that to this day casts doubt on the actual financial position of the agency. Finally, it might have broken the law by allowing rates that were too low; Citizens must charge a 10 percent higher rate than a basket of private providers in a parish except in 12 coastal parishes until Aug. 15. 2010.

But current management seems to have turned a corner. The number of policies written is beginning to fall as the state adopted less-intrusive procedures principally by abolishing the politically-charged Louisiana Insurance Rating Commission at the end of 2007, encouraging the private sector insurers to write policies. Keeping the 10 percent requirement has meant that, except in areas recovering from the hurricanes, they did not have to face government competition which is driving the industry out of Florida which does not have this standard.

The state also passed a law that provided an incentive pool to attract insurers in the storms wake, up to $100 million doled out to insurers who wrote a certain number of policies in the affected areas. But only $29 million has been used and so ratepayers may be getting a rebate soon, which would go some ways to alleviating the extra surcharge many paid to recapitalize Citizens after 2005.

So, progress is being made in a struggle that three years ago looked formidable, when talk about an insurance crisis was common where homeowners in the especially vulnerable parishes would be unable to get any except through Citizens. It also helped that the state revised its building code that encourages stouter structures that should prompt lower rates for new construction.

Challenges do remain that will finish the turnaround. The law that permitted competitive rates in the 12 parishes needs to lapse to get the state further out of the insurance business and encourage more of the private sector in, which will bring down rates. The incentive fund must also be allowed to wither away as it proved itself of little utility. And efforts to bring about a regional or national high risk pool to cover adverse weather events must be thwarted, for that only transfers risk to taxpayers and creates less incentive for insurance companies to manage their risks and assets well knowing government always will be a backstop, inflating rates and deflating coverage.

Things like these ignored in places like Florida are causing higher rates than need be. Louisiana must continue on the path it has been taking and what was once termed a crisis will dissipate with few of the predicted dire consequences.

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