The short-but-sweet special session of the Louisiana Legislature to kick off next week came more from politics than any genuine need for urgency.
The very narrowly-defined call by Democrat Gov. John Bel Edwards leaves legislators only the option to choose how many of just-recognized excess dollars from last month’s Revenue Estimating Conference forecast to pour into a special fund designed to attract property insurers into the state. At the behest of Republican Insurance Commissioner Jim Donelon, $45 million of the almost $925 million would go for this purpose.
The vehicle used will be an overhaul of an effort over 15 years ago in response to insurers either dissolving or refusing to write policies in the state after the hurricane disasters of 2005. A series of lesser storms over the past couple of years has triggered a similar situation and pushing at least 20 insurers out of the state, driving the population of the state-overseen nonprofit insurer Louisiana Citizens Property Insurance Corporation to levels last seen in the aftermath of 2005 comprising about a tenth of all insured properties. Further, rates for Citizens clients on average will increase 63 percent.
Property owners in the state may feel a pinch as well. In the previous incarnation of the Insure Louisiana Incentive Program, the extra costs assumed by Citizens were passed on to other insured’s policy costs, although with a tax credit against, in addition to tax dollars supporting more writers to come into the state.
Only months prior to the first of four major storms over two years, the Department of Insurance in 2020 repealed the administrative rules that had governed the program, but the enabling act remained in statute. Last year, amendments to it updated that and it was assumed money could be deposited into it during this year’s session. Instead, even as 2022 didn’t bring much weather chaos to Louisiana, what had accumulated plus pressure on insurers elsewhere produced the current environment.
Whether that demands a special session just over two months prior to the regular one is another matter. Donelon says it’s needed because underwriters need to make decisions about issues such as reinsurance by the start of hurricane season Jun. 1, and the regular legislative process with all hands acting expeditiously still wouldn’t produce a law until past mid-April.
Still, that would leave weeks for companies to act, and with the law on the books they know what to expect. Plus, they know Donelon could issue emergency regulations essentially identical to those repealed to have the entire regulatory structure ready to go by the end of April. That doesn’t seem like too much of a reach to attract new and expanded coverage, reinsurance assured for them, by the end of May.
Republican legislators, largely conservatives, were nonplussed if not a bit wary of the rush imposed upon them. They considered the extreme narrowness of the call an opportunity missed for more comprehensive insurance reform, which could have been accomplished had the call been broader and another few days tacked onto it (still bringing it to a close before Carnival). It’s not like dozens of reform proposals haven’t floated around the Legislature over the past few years and along with other such ideas that could improve delivery and mitigate taxpayer risks that have surfaced provide adequate material to make reformist strides immediately, if not during the regular session.
Focusing only on resurrecting the incentive program brings two risks, beginning with its benefits proved largely transitory. Almost half enticed into writing policies no longer do so. That high attrition rate may not change because the amended law lowered writers’ minimum capital 60 percent to $10 million (another statutory change last year made this the overall minimum to do business in the state), inviting in weaker companies to the deal.
But perhaps the driving force behind Donelon’s big effort to rush things comes because not only does he face a tough reelection campaign this fall against the same challenger he barely defeated last time but also some legislators blame his department’s performance for unnecessarily exacerbating the crisis, particularly for allowing some of the failed companies to price too low thus not having enough reserves for the risk involved. Donelon claims part of the problem came from a rating firm that he said ultimately produced untrustworthy assessments of writers’ financial healths, as well as some of the failed firms were headquartered elsewhere and he relied on those state’s assessments.
Regardless, it would seem the department didn’t scrutinize enough, and a way to repair assignments of blame for that prior to the election would be a presumed solution, the quicker the better. But this specialty handling certainly misses a chance for more fundamental restructuring, if not risks reducing that chance because when the regular session rolls around the temptation (if not a purposely expedient political reaction for some) will be to declare the problem solved. It won’t be, just treating symptom instead of the disease.
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