Hurricane Season in Louisiana-Any Help from Legislature?

June 13, 2009

 

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Thursday June 11, 2009

New Orleans, Louisiana

LOUISIANA HURRICANE SEASON

DO YOU FEEL LUCKY?  WELL DO YA?

A dangerous hurricane season this year?  Forecasters are predicting nine to 14 named tropical storms with four to seven of them expected to be hurricanes. And three could be major.  Or as Dirty Harry would say: 44 Magnum hurricanes, the most powerful hurricanes in the world. So what is the Louisiana Legislature doing to give homeowners protection and relief?  Nothing.  It’s every homeowner for themselves.  So the only question you can ask is, do you feel lucky?

Thought out the gulf south, other states are scurrying to develop legislative strategies to hold the line on rising property insurance costs.  In South Carolina, a number of new initiatives passed the legislature including the establishment of catastrophe savings accounts that are tax free, allowing new self-insured procedures for homeowners, and giving tax credits to those who make their homes more storm resistant.  Georgia has beefed up its state property insurance association of last resort with the purchase of reinsurance to cover any major disaster.

Alabama is following the South Carolina model mandating companies to give cheaper premiums in exchange for structural improvements to homes.  Mississippi is using federal funds to bolster their state run insurance company of last resort, so as to keep insurance rates down. Some $25 million in federal dollars were also obtained in initial funding for the state‘s wind damage mitigation program. Homeowners can get up to 75% of the cost of such improvements, and once the work is done, a significant reduction in premium costs, as much as 50%, is the immediate result.

Texas has adopted a long list of changes in recent years, and recently bolstered its windstorm insurance program to cover damages exceeding one billion dollars.  What this means is that Bermuda reinsurers pay the bill instead of Texans.  Taxpayers in Texas don’t get stuck like they do in Louisiana. Just last week, Texas legislators became so incensed at the lack of effort by the Texas Insurance Department to lower rates that they voted to abolish the entire department.  A special session will have to be called by the governor, but lawmakers made no bones about their desire to get property rates reduced.

Florida Governor Charlie Crist, who has made insurance reform a front burner issue since the day he took office, continues to push an aggressive insurance agenda.  Several years ago, Florida formed a Hurricane Catastrophe Fund that offered cheap backup coverage or reinsurance to private insurers.  Since then, 40 new companies have flocked to Florida.  Louisiana legislators keep hands off any such changes.  The result?  Just last week, the AAA Insurance group announced they were pulling out of Louisiana, becoming the latest company to do so.

Florida also brought in Warren Buffett’s company Berkshire Hathaway to develop a plan for responding to a massive hurricane hit.  Buffett’s firm has pledged up to $ 4billion in state bonds if such a disaster would take place.  Florida too has a Citizens Property Insurance Company.  But while Louisiana’s similar company continually has raised their rates to the highest in the country, Florida legislators has frozen any such rate increase for at least the next three years.

What can be seen here is an aggressive approach by legislators and insurance departments all along the gulf coast to mitigate exposure, provide back up for private companies, and offer reinsurance to the private insurance market.  But there is one exception, and that’s here in Louisiana.   The legislature in the Bayou state is now in session, and so far, only two insurance proposals of any significance are making their way through the process. First, there exists a fund of some $100 million to attract new insurance companies to the state. The idea has proven to be a mistake and the present law says the leftover money, some $70 million, is to be refunded to policyholders.  Paid back to you as a homeowner.   Not so say current legislators.  They are diverting this money back to the general fund, breaking their promise to the policy holders of the state.

The other proposal working its way through the process involves complicated legislation affecting take out companies that sell property insurance in south Louisiana.  Bottom line is that under this new proposed law, many homeowners will see their yearly premiums rise by as much as 20%. So the best you can expect in Louisiana is to lose your promised refund and see your insurance rates go up.  That’s it.  Nothing else.  NO creative thinking or even an effort to copy a number of good, working proposals in other gulf coast states.

So how do rates compare along the gulf coast when data is reviewed that is supplied by the National Association of Insurance Commissioners?  In the latest figures available, Louisiana policyholders paid 3.31 percent of the state’s household median income for a homeowner’s insurance policy, the most expensive in the country.  This was almost 40% higher than the nationwide average.  Along the gulf coast, Florida pays 3.16%, Mississippi pays 2.81%, Alabama is at 2.31%and South Carolina comes in at 2.05%

 When you look at the comparisons figures or cost per $100 of residential property insurance, Louisiana property owners again lead the nation by paying an average $1.006.  Texas comes in second highest at 93.9 cents, Mississippi paid 79.8 cents, Alabama paid 71.5 cents and Florida paid only 69.3 cents. That’s right.  Florida, the state that Louisiana insurance officials and legislators dismiss as being too pro active, is at the bottom of the gulf south list while continuing to attract new insurance companies to the Sunshine state.

Louisiana continues to have the highest property insurance rates in the country, and makes less effort by far than any other gulf coast state to get skyrocketing premiums under control.  If another major hurricane hit the state, affordable rates would become, for most homeowners, nonexistent.  About the best you can hope for during this hurricane season in Louisiana is to keep your fingers crossed and ask the basic question:  “Do I feel lucky?”

 Well do ya?

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“The threat of hurricanes and the Ku Klux Klan; those two things made me decide not to build on the Alabama coast.”        Writer Shelby Foote

                                                                                                               

Peace and Justice

Jim Brown 

Jim’s syndicated column appears weekly in numerous newspapers and websites throughout the south.  You can read all his back columns by going to www.jimbrownla,.com. 


1 comments
Olcoot
Olcoot

I see a couple of problems here. First, if you build in a flood zone, then it is YOUR responsibility (not mine) to absorb the cost of flooding. Don't take MY money to pay for your elected risk. There is NO good reason taxpayers in Monroe should be paying for the reduced cost of Hurricane/flood insurance for people in New Orleans. When I bought the house where we live, one of the eliminating criteria was flood plain: I simply refused to buy a house that is going to flood. Result: I don't even have flood insurance. If you want to buy in a flood zone, OK by me; but don't ask me to help pay for your insurance with my taxes. NO. Second problem: when government meddles in free enterprise issues (like who is insured, for how much) they always create more problems than they solve. Let the Free Market work. If the legislature wants to offer 'incentives', guess who pays? No, thanks. Barring government interference, market costs rise and fall as a function of supply/demand. The cost of flood insurance goes up when the risk goes up: periods of high flood activity, or bloated claims. If you build a house in an area where the waterline is shoulder-high on the trees in the yard, then pay the price. If you use a hurricane as an excuse to force the insurance company to replace your aging roof, then expect rate increases. If the legislature wants to offer alternatives like tax free accounts, GREAT! That doesn't cost other taxpayers, and gives insurance companies incentive to be cost-effective. But leave my tax dollars out of it: it's NOT their money; it's MY money. And the general principle is that Government intervention is another problem, not a solution.

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