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The headlines blared across newspapers and television stations last week.  “State insurance leaders join forces on Catastrophe Reform Legislative Package,” featured the Lake Charles American Press.  “An insurance reform package is working its way through the Louisiana Legislature, “publicized TV station WDSU in New Orleans.  Similar reports fanned news media all over Louisiana.

So just what are these major new “catastrophic laws” that will get insurance claims resolved quickly and lower the outrageous rates the public is currently being charged?  With few exceptions, it’s all window dressing.  That’s right.  Almost every proposal by members of the legislature could be implemented and made a requirement by a simple directive issued by the Department of Insurance.

If an insurance company is delaying the payment of claims or “lowballing” by not paying legitimate claims in full, the Insurance Department has plenty of authority to levy major fines or even revoke the charter of the company that continues to ignore these regulations.

Another supposed “catastrophic change” calls for raising the minimum capital and surplus requirement for existing insurance companies from $3 million to $5 million by the end-of-year 2026, and to $10 million by end-of-year 2031.  Such higher requirements should not be necessary if the Insurance Department is properly examining insurance companies located in Louisiana.  There has been a woeful lack of reinsurance requirements of Louisiana insurance companies, all that should be set and required by the Insurance Department.  Insurance companies buy their own insurance in case they don’t have enough reserves to pay the claims of policyholders. That’s what the purchase of reinsurance from other major companies that specialize in reinsurance are for.

The best example of a company being able to operate in Louisiana and not have adequate reinsurance is the creation by the Insurance Department of Citizens Property Insurance Corporation.  This is the company that U.S. Senator John Kennedy, while serving as Louisiana state treasurer, called the biggest financial disaster in the state’s history.  Citizens has been a calamity from the get-go, and has cost Louisiana taxpayers almost two billion dollars.  It had almost no reinsurance. So if Louisiana insurance companies are going broke, the Insurance Department has been negligent in not properly requiring enough reinsurance.

And a side note here. The insurance industry doesn’t always come across as the good guy when disasters roll around. I will share an anecdote with you from 1992. Andrew had just hit the Florida coast doing massive damage, and was back into the Gulf on a three-day track towards Louisiana. America’s largest insurance company was A.I.G., based in New York and insuring numerous homes in Louisiana. The President of A.I.G. at the time was a fellow named Hank Greenberg, who has been in the news a lot recently over a major investigation by the Attorney General of New York. As Andrew approached Louisiana, Greenberg’s son, Jeffrey, also working for A.I.G., sent out a press release to key insurance brokers throughout the country. He basically said that the climate was right to immediately go into various insurance departments throughout the Gulf Coast and ask for big rate increases. His timing was terrible, and the approach he took did a lot of damage to the company’s image.

I was in my second year as Insurance Commissioner, and was working late one evening. My secretary buzzed and told me there was a Mr. Hank Greenberg on the telephone. It was 8 o’clock in Baton Rouge, which meant it was 9 o’clock in the evening at his office in New York.

When I picked up the phone, he came right to the point. “Commissioner, do you have any kids who really did some stupid things and stuck their foot in their mouth?”

“Yes, I have,” I smiled and replied.

“That’s exactly what my son did in putting out the dumb release about raising rates. With the storm approaching your shores, this is about the last thing we should have done. I am calling to apologize.”

The senior Greenberg handled the issue with some taste and class, and I have always respected the way he handled this explosive situation.

Instead of clamoring for unneeded new authority to increase oversight, and additional requirements on the insurance industry, the legislature should take a close look at why these same requirements are not being enforced by the regulators.  So if most of these proposed new “catastrophic laws” are unnecessary, just what should the legislature be requiring?

First, as Senator Kennedy has suggested, abolish the dysfunctional Citizens Property Insurance Corporation. This legislatively created company was modeled after a similar concept out of Florida. But the Louisiana company has been rife with problems from its beginning.

Second, pass legislation requiring the governor and the insurance commissioner to meet with other state officials in surrounding southern states to form a joint catastrophic insurance pool. Recent hurricanes in south Louisiana dramatically show how the state is just too small to go it alone when it comes to dealing with hurricane related insurance issues. These deep southern states need to create a comprehensive response mechanism for mega-catastrophes. There is ample evidence that such a program is both necessary and critical to any affordable insurance solution in Louisiana.

Actually, with all the natural disasters happening all over the country, it would be a great help to Louisiana for the creation of a national catastrophic insurance pool. In November of 1993, I testified in Washington for the Senate Commerce, Science and Transportation Committee for the necessity of such a national catastrophic fund. Congress talked about it then, but didn’t feel the pressure to address this serious national issue. Former FEMA Director James Lee Witt recently called for creation of such a national fund. Florida has joined the effort as are other states at risk along the east coast. But Louisiana should take the lead. There is more at risk down here, and the post-Katrina damage shows ample evidence that such a fund is necessary. The next Insurance Commissioner should be in the forefront of speaking out and lobbying nationwide for the creation of such an important fund.

A similar fund was formed to create an umbrella of protection following the 9/11 catastrophe in New York. This is no federal bailout. A small portion of every policyholder’s yearly premium should go into such a fund. Then, when a mega-catastrophe happens, insurance companies would be on the hook only up to a certain amount. Above that amount, the fund kicks in. The bottom line? More predictability for insurance companies, and more stable, reliable rates for homeowners and businesses. With the future threat of hurricanes hanging over this part of the country, such a fund should be a no-brainer.

Third, Louisiana needs more than passive regulation.  Proper regulation touches every single citizen. Following the recent spat of hurricane destruction, thousands of people could lose their homes due to the uncertainties of their insurance. There is a need for an aggressive, well informed vocal advocate. A number of states have an insurance consumer advocate located under the governor’s office.  An insurance commissioner, who receives political contributions from the insurance industry is not the person to supposedly be looking out for policyholders. It’s the proverbial fox guarding the house. Better protection needs to be afforded to all insurance policy holders.

What’s the old Confucius saying?  Needing insurance is like needing a parachute. If it isn’t there the first time, chances are you won’t need it again. It’s crunch time to put laws on the books that have some teeth and that can really protect policyholders in Louisiana.

Peace and Justice

Jim Brown

Jim Brown’s syndicated column appears each week in numerous newspapers throughout Louisiana and on websites worldwide. You can read all his past columns and see continuing updates at http://www.jimbrownusa.com.  Readers can also review books by Jim Brown and many others he has published by going to http://www.thelisburnpress.com.