Bad News for Louisian Insurance!

January 5, 2011

Thursday, January 6th, 2011

Baton Rouge, Louisiana



So happy New Year! And by the way, get ready for higher property insurance rates along the Gulf Coast, particularly in Louisiana.  One would think that if anything, homeowner’s rates would be going down.  After all, there has been virtually no hurricane activity in the Gulf for the past four years.  And with the national economic slump, home prices have dropped which should translate into lower insurance rates.  Not so say the experts.  Here are a few reasons why many states, particularly my home state of Louisiana, will see higher rates in the coming year.

Huge claims for the BP Gulf Oil spill will definitely boost insurance rates for the oil industry. No one at this stage can even guess what the final insurance costs will be from both the damage and years of ligation from the Gulf spill.  Most of the larger oil companies are self insured, which means they will have to divert funds from operating costs into designated reserve funds.  Independent companies, that produce both oil and gas, will see their insurance costs go up. Higher insurance costs mean cut backs, possible layoffs, and higher prices for both oil and gas. And those insurance companies that have taken a big hit over the Gulf spill will have no choice but to raise rates for all lines of insurance, including homeowners.

Citizens Property Insurance Company in Louisiana continues to run amok, and be a factor in higher insurance rates. Louisiana taxpayers are on the hook for well over a billion dollars because of the state created company’s mismanagement. The company is now bragging that it has reduced the number of policies it is selling.  But this becomes a catch 22.  As Citizens looses customers, the overall risk increases.  A new study by the Insurance Information Institute pointed out the Louisiana state run plan still maintains a “precarious financial condition.”  Simple translation — it’s broke, and will be for years. 

 Last month the company asked the Louisiana Insurance Department for an increase that in some south Louisiana parishes will top 24%. Yes, the number of Citizens policies is dropping, but often in a troubling way.  Just last Sunday, The Times Picayune reported that when property owners make claims against Citizens, the company drops the homeowner for future insurance.  Wasn’t Citizens created to be the state’s property insurer of last resort?  Apparently not.  Make a claim against Citizens, and boom…you lose your insurance coverage.

And to rub the salt into homeowners’ wounds even more, Louisiana is holding back some $350 million in rebates that are due homeowners from the Citizens debacle. Now remember that this rebate is owed to all homeowners who buy insurance from any company, not just Citizens. It would be a simple matter for the Insurance Department to send information as to who is entitled to such a rebate to the Department of Revenue, and the state tax collector could then give a tax credit to all homeowners entitled to the rebate.  But they way the system works now, few homeowners even know about the rebate, so these hundreds of millions of dollars will go back to the state general fund. Apparently our politicians know quite well what they are doing.

Much of the blame for rising rates can well be directed at state insurance regulators. Too many insurance companies try to game the system. Florida newspapers are full of recent stories revealing how a number of insurance companies tell Florida regulators they are losing money and need higher rate increases. Yet these same companies, who are publically traded, have made filings with the Securities and Exchange Commission stating that they are making a tidy profit.

A number of these same companies that are hoodwinking Florida regulators are operating in Louisiana, pulling quite a bait and switch.Here’ how they do it.  Many companies operating in both Florida and Louisiana create sister companies set up to provide management services, claims adjusting, and other jobs.  The same owners are often involved and operate with no employees of their own. 

It gets a bit complicated here, but companies often pay affiliates based on a percentage of premium, so any rate increase to the insurance company is also an increase in what the affiliates get paid.  Expenses are deducted, the company says it’s not making money, and gets a rate increase even though the wholly owned affiliate is making a big profit.  Guess who gets stuck with paying higher rates?

And who is checking to be sure that an insurance company is not overcharging?  State regulators are supposed to aggressively audit companies on a regular basis.  Unfortunately for the small business owner and homeowner, few states aggressively investigate charging practices of national companies that operate in their home state.  Liberty Mutual, which operates in Louisiana, agreed to pay a multimillion-dollar settlement in several states after they were accused of bid rigging and paying kick backs to insurance agents who steered customers to the company.  Customers were cheated out of a chance to get the lowest price.

Other major companies including Zurich Financial, AG, Ace, CNA, and Pennsylvania Manufacturers all agreed to pay New York $120 million for overcharging customers.  These same companies operate in Louisiana and the Gulf Coast, but no similar investigations are taking place in this part of the country.  So are you being overcharged? 

AIG is the largest insurance entity operating in Louisiana, for example, and yet it has never been audited by Louisiana state regulators.  Taxpayers had to bail out AIG to the tune of $180 billion, putting many Louisiana policyholders at risk. Insurance is regulated at the state level, so if your home state does not join in an effort to audit national companies, then the policy is that you are on your own.

What is Louisiana doing about continually rising rates?  It will spend one million dollars in the coming months to study health insurance premiums. But Louisiana regulators have no control over health rates.  Medical insurance rates are not subject to approval by the state department of Insurance. So Louisiana has the highest property insurance rates in the country, the highest auto rates in the country, yet one million dollars will be spent to study health rates over which the state has absolutely no control.  Is there any wonder why insurance premiums keep going up? 


It’s not hurricanes that are causing high insurance rates, but bad public policy.”  

                                  -Policy Analyst Michelle Minton

Peace and Justice

Jim Brown

Jim Brown’s syndicated column appears each week in numerous newspapers and websites throughout the South.  You can read all his past columns and see continuing updates at You can also hear Jim’s nationally syndicated radio show each Sunday morning from 9 am till 11:00 am, central time, on the Genesis Radio Network, with a live stream at The show is televised at  


Capitol Hill Press Releases March 23, 2006

Capitol Hill Press Releases 03-23-2006 For Immediate Release Lugar Speech to National Defense University Contact:

Andy Fisher 202-224-2079 March 23, 2006 Following is today’ s speech by Senate Foreign Relations Committee Chairman Dick Lugar to the Symposium on ” Resourcing Stability Operations and Reconstruction: Past, Present and Future ” at the Industrial College of the Armed Forces, National Defense University. The full text: I am honored to join you today to address the issue of stabilization and reconstruction operations. I am pleased that the Industrial College of the Armed Forces is taking on this important issue as part of the Army ‘ s Eisenhower National Security Series. The Senate Foreign Relations Committee has given much thought to this topic during the last few years, and we have benefited from the insights of many of today ‘ s participants. International crises are inevitable, and in most cases, U.S. national security interests will be threatened by sustained instability. The war on terrorism necessitates that we not leave nations crumbling and ungoverned. We have already seen how terrorists can exploit nations afflicted by lawlessness and desperate circumstances. They seek out such places to establish training camps, recruit new members, and tap into a global black market in weapons. In this international atmosphere, the United States must have the right structures, personnel, and resources in place when an emergency occurs. A delay in our response of a few weeks, or even days, can mean the difference between success and failure. Clearly we need a full range of tools to prevail. My own focus has been on boosting the civilian side of our stabilization and reconstruction capabilities, while encouraging improved mechanisms for civilian and military agencies to work together on these missions. Building a Stabilization and Reconstruction Capacity Over the years, our government has cobbled together plans, people, and projects to respond to post-conflict situations in the Balkans, in Afghanistan, in Iraq, and elsewhere. The efforts of those engaged have been valiant, but these emergencies have been complex and time sensitive.

In my judgment, our ad hoc approach has been inadequate to deal quickly and efficiently with complex emergencies. In turn, our lack of preparation for immediate stabilization contingencies has made our subsequent reconstruction efforts more difficult and expensive. In the Fall of 2003, I began to explore the possibility of legislation that would bolster U.S. post-conflict stabilization and reconstruction capabilities. My own perceptions of shortcomings in this area were reinforced when I discovered a State Department report on its goals and activities that barely mentioned the mission of stabilization and reconstruction efforts. My thinking was also stimulated by the work being done on the issue at a number of important organizations and think tanks, including the RAND Corporation, the Center for Strategic and International Studies, the U.S. Institute of Peace, and the National Defense University.

Thoughtful scholarship and analysis were being devoted to the problem, and much of it supported the objective of improving the capacity of U.S.

civilian agencies to deal with overseas emergencies. In late 2003, I organized a Policy Advisory Group made up of government officials and outside experts to give members of the Senate Foreign Relations Committee advice on how to strengthen U.S. capabilities for implementing these post-conflict missions.

Several of the experts that participated in that Policy Advisory Group are in the audience today. After several meetings and much study, members of the Committee came to the conclusion that we needed a well-organized and strongly led civilian counterpart to the military in post- conflict zones. The civilian side needed both operational capability and a sig nificant surge capacity. It was our judgment that only a cabinet-level secretary could provide the necessary inter-agency clout and leadership to create and sustain the organization. In our judgment, the Secretary of State, working with USAID, was best positioned to lead this effort. Building on our deliberations, I introduced S. 2127, the Stabilization and Reconstruction Civilian Management Act of 2004 with Senators Biden and Hagel. The Committee passed the bill unanimously in March 2004. The legislation envisioned a new office at the State Department with a joint State Department- USAID readiness response corps comprised of both reserve and active duty components. web site national defense university

To maximize flexibility in a crisis, our legislation also authorized funding and provided important personnel authorities to the new office. The State Department responded to this action by establishing the Office of the Coordinator of Reconstruction and Stabilization in July of 2004. This was an important breakthrough that demonstrated the State Department ‘ s recognition of the role it could and should be playing. Together with other members of the Foreign Relations Committee, I have endeavored to provide support and encouragement to this new office. Under the leadership of Carlos Pascual, the office has conducted a government-wide inventory of the civilian assets that might be available for stabilization and reconstruction tasks in post- conflict zones. It has undertaken the planning necessary to recruit, train, and organize a reserve corps of civilians for rapid deployment. It also is formulating inter-agency contingency plans — informed by our past experiences — for countries and regions of the world where the next crisis could suddenly arise. In December 2005, the President signed a directive putting the Secretary of State in charge of inter-agency stabilization and reconstruction efforts.

Last month, Secretary Rice promised to dedicate 15 of the 100 new positions she is requesting for Fiscal Year 2007 to the Reconstruction and Stabilization Office. This will increase staff to about 95 individuals. Despite this good progress, significant gaps in our capabilities remain. While many of the measures called for in our legislation have been implemented, some are not yet on the State Department ‘ s drawing board. For example, we envisioned a 250-person active duty corps, made up of both State Department and USAID employees. Such a corps could be rapidly deployed with the military for both initial assessments and operational purposes. They would be the first civilian team on the ground in post-conflict situations, well in advance of the establishment of an embassy. This active duty corps would be able to do a wide range of civilian jobs that are needed in a post-conflict or otherwise hostile environment. Such a 250-person corps would be no larger than the typical army company. But it would be a force multiplier. It would be equipped with the authority and training to take broad operational responsibility for stabilization missions. Establishment of such a corps is a modest investment when seen as part of the overall national security budget. Even in peace time, we maintain active duty military forces of almost 1.4 million men and women who train and plan for the possibility of war. Given how critical post conflict situations have been to American national security in the last decade, I believe it is reasonable to have a mere 250 civilians who are training for these situations and are capable of being deployed anywhere in the world, at any time they may be needed. Our legislation also calls on the heads of other executive branch agencies to establish personnel exchange programs designed to enhance stabilization and reconstruction capacity. The Departments of Agriculture, Treasury, Commerce, Health and Human Services – indeed virtually all the civilian agencies – can make unique contributions to the overall effort. Finding Necessary Resources The main roadblock to enhancing the State Department ‘ s stabilization and reconstruction capacity has been resources. Our legislation envisioned $85 million annually for the new State Department office. This would fund both the reserve and active duty corps, as well as training, equipment, and travel. We also agreed that a $100 million crisis response fund should be available as a contingency for stabilization and reconstruction crises declared by the President. So far, however, only about $21 million has been provided for the operations of the State Department ‘ s Reconstruction and Stabilization Office since it was established in 2004. With Carlos Pascual at the helm, the office heroically stretched dollars by recruiting personnel on detail from other agencies, taking advantage of DOD-funded training, and getting the State Department to pay for the overhead of new office space from other sources. But such a hand- to-mouth existence has obvious disadvantages. Detailed personnel rarely stay long, and institutional memory becomes short. Relying on DOD funds puts the office in the passenger seat when it should have the resources to pursue uniquely civilian-oriented goals. In addition, the stabilization contingency fund outlined in our legislation has not been appropriated. On the Senate side, we were able to secure $20 million for the fund in the FY 2006 Foreign Operations Appropriations Bill. The entire amount, however, was eliminated in the Conference Committee with the House. This means that the State Department will have to respond to a crisis as it always has, by scraping together funds from various bureaus. see here national defense university

One stopgap measure that the Congress did pass in FY 2006 was the authority to transfer up to $100 million from the Pentagon to the State Department for boosting the civilian response to particular trouble spots. However, this was a one-year authority, and this money will not provide the resources necessary over the long term to improve the State Department ‘ s capacity to be a capable partner in responding to complex emergencies. The foreign affairs budget is always a tougher sell to Congress than the military budget.

To President Bush ‘ s credit, he has attempted to reverse the downward spiral in overall foreign affairs spending that took place in the 1990s.

In that decade, both the executive and legislative branches rushed to cash in on the peace dividend. But President Bush has consistently requested increases for the 150 Account in his budgets. For the fiscal year 2007 budget, he requested a 10.3 percent increase over the CBO- determined baseline of fiscal year 2006. But, if previous years are any example, the amount appropriated will fall far short of the amount requested. Last year, the President ‘ s annual request for foreign affairs was cut by $2.1 billion.

The Congress cut the fiscal 2005 annual request by a similar amount. According to a Congressional Research Service report that I requested, Congress has provided $5.8 billion less than the President has requested for foreign affairs in regular and supplemental spending bills since September 11, 2001. Today, when we are in the midst of a global struggle of information and ideas, when anti-Western riots can be set off by the publication of a cartoon; when we are in the midst of a crisis with Iran that will decide whether the non-proliferation regime of the last half century will be abandoned;

when we have entered our fourth year of attempting to stabilize Iraq; and when years of effort to move the Arab-Israeli peace process are at risk – even then, the reservoir of support for foreign affairs spending in Congress is shallow. Members of Congress may recognize the value of the work done by the State Department and some selected programs may be popular, but at the end of the day, the 150 Account is seldom defended against competing priorities. As all this suggests, we have a long way to go on the civilian side of stability and reconstruction efforts. The Defense Department is keenly aware of the importance of having a capable civilian partner in such operations. We should consider setting up a multi-agency fund specifically for addressing stabilization and reconstruction planning and operations.

Dispensing with the competitive inter-agency scramble for resources would not be easy, but the need for more coordination is clear. If the problems on the civilian side of crisis management cannot be solved, I think we will begin to see a realignment of authorities between the Departments of Defense and State. Some would argue that this realignment has already begun. For example, the Department of Defense requested a DOD-operated worldwide train and equip program, and it was granted money and authority despite the fact that foreign assistance has long been under the purview of the Secretary of State. If we cannot think this through as a government, the United States may come to depend even more on our military for tasks and functions far beyond its current role. But I remain optimistic that we can build on the progress already made to create a robust civilian component to our stabilization and reconstruction capabilities. I appreciate your invitation to speak on this important topic, and I look forward to the results of your deliberations.



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