[StBernard] Louisiana Blanco Threatens Bet On Florida Insurance Model

Westley Annis westley at da-parish.com
Mon Feb 5 23:22:33 EST 2007

While returning from a meeting in California with the Property and Casualty
Insurers of America, Governor Blanco made a rather provocative statement in
a telephone interview with a reporter. Here is her statement: "I told (the
insurers) that we want them to come in and fill the voids, or else (our)
state government is going to do something like Florida has done."

To understand the magnitude and potential consequences of
Governor Blanco's comment, one first has to understand exactly what Florida
"has done" in its recent special session on insurance.

First, Florida took its insurer of last resort-the state-created
Citizens Property and Casualty Insurance Company-and made it a direct
competitor with the private insurance industry. The Legislature removed a 56
percent rate increase for Citizens that was scheduled to go into effect, and
retroactively removed a 12 percent increase that went into effect January 1
of this year. They gave Citizens permission and encouragement to expand its
policy limits and write policies in lines of insurance from which it had
previously been barred. Additionally, if Citizens gets hit with losses (a
strong possibility for an undercapitalized carrier), every property and
casualty, general liability, automobile, and workers comp policy in Florida
will be assessed a fee until Citizens' losses are paid. State officials in
Florida profess the belief that a surge in underwritings by a greatly
under-capitalized, state-backed competitor will force the private insurance
industry to reduce its rates in order to compete with Citizens for a market
that is rife with open-ended risks.

Second, the Florida Legislature greatly expanded the role of its
Catastrophe (Cat) Fund without putting any cash into its coffers. The
fund-originally created a decade ago-slowly accumulated a reserve of $6
billion in its first 10 years of existence. The hurricanes that struck
Florida in 2004-2005 bankrupted the fund and forced the state to put $715
million into it, as well as floating a bond issue backed by policy
assessments to make it solvent. In the recent special session, the
Legislature added another $16 billion layer to the fund, putting the
state/citizenry on the hook for approximately $35 billion if more
catastrophic storms come Florida's way-which they certainly will at some

Basically, Florida's governmental leaders walked into the
weather "casino" and bet $40 billion or more on red. If the hurricane winds
blow, they will be incapable of paying off the losses without massive
assessments on almost every insurance policy in Florida and perhaps
significant tax increases on top of that. If that happens, almost all forms
of insurance in Florida will increase drastically in cost, and the fiscal
stability of the state will be called into question.

When Governor Blanco-or members of our Legislature-proclaim that
they harbor intentions to "do what Florida has done," everyone should
understand clearly what they are talking about. It means that they plan to
take our "insurer of last resort"-Louisiana's Citizens Insurance Company
that was copied from Florida-and allow it to take on a huge book of business
and compete directly with the private insurance industry. If that happens,
every insurance policyholder in the state will be at risk for paying huge
increases in many lines of insurance if Citizens again encounters
significant losses. As Citizens' book of business swells, its ability to get
critical reinsurance will degrade, putting taxpayers and policyholders even
more on the hook.

If Governor Blanco wants to join Florida at the tables in the
weather "casino," she does so at your peril and mine.
(This column was written before the Florida tornado tragedy)

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