By: Jim Brown, Jim Brown's Common Sense
A local news reporter where I live posed the question this week as to whether insurance rates for property owners will begin to rise, following the recent South Louisiana flooding. My answer was simple. Of course they will go up. In fact, the cost of insurance would have continued to go up even without the recent flood. You see, that's what happens in Louisiana. Rain or no rain, flooding or no flooding, hurricanes or no hurricanes, the cost of insurance in the Bayou State continues to rise.
Remember now, there has been no major hurricanes out in the Gulf in almost a decade, and weather related insurances claims have been minimal. In this most recent flooding, a large majority of the homes that were inundated with water damage had no flood insurance. Insurance companies had very little exposure since homeowners' polices do not include flood insurance.
But despite minimal losses, the drumbeats for higher insurance rates have begun. The Louisiana insurance department, that is supposed to be the watchdog for the consumer, is already talking about higher rates outside the flooded area far east as Slidell where no flooding took place. It would seem that both insurance companies and insurance regulators both subscribe to the old axiom, "You never let a good crisis go to waste."
In recent years, Louisiana has never felt a compelling obligation to go to bat for insurance policy holders. In most states, insurance companies are subject to a pre-approval process wherein the insurance department determines if the increase is warranted, so that the property owner can be assured that any increase is both fair and necessary. But Louisiana is different. In the Bayou State, insurance companies are not required to get rate increases pre-approved. So the answer to the question of how come big insurance companies can stick it to homeowners, whether or not such an increase is justified, is simply this - they do it because they can.
And some insurance companies don't wait long following a disaster to push for rate increases. Back in 1992 during my first term as insurance commissioner, Hurricane Andrew hit the Gulf Coast killing 17 people. Louisiana's largest insurance company at the time was the American International Group (AIG). Within 24 hours, the senor vice president sent out a memo to key company executives that read: "Begin by calling your underwriters together and explaining the significance of the hurricane," he wrote in the two-paragraph memo. "This is an opportunity to get price increases now. We must be the first, and it begins by establishing the psychology with our own people. Please get it moving today."
There is little discussion about any long-range insurance rate help by legislators and other public officials. One responsible voice in the regulatory wilderness is Louisiana State Treasurer John Kennedy, who has proposed a statewide flood insurance program to be a buffer beyond the current federal program. It's a good idea for discussion where a small portion of each property insurance policy sold in Louisiana would go into a state fund to be used when there is major flooding in the state.
Kennedy, a candidate for Louisiana's open U.S. Senate seat, is under political attack by several of his opponents for offering what they consider to be an unworkable and expensive solution to a major Louisiana problem. But it just shows how naive these critics are when it comes to insurance issues. Kennedy has made a good proposal that ought to be explored.
Unfortunately for Louisiana property owners, creative solutions to contain costs and give better insurance coverage has not been a priority by public officials in Baton Rouge. The response seems to be to find a quick fix now, and let the Feds figure out what to do in the future. But Louisiana is only going to be able to go to the federal trough so often. Responsible state officials need to confect a much better insurance response.
"It's not hurricanes that are causing high insurance rates, but bad public policy."
Policy Analyst Michelle Minton
Peace and Justice
Jim Brown's syndicated column appears each week in numerous newspapers throughout the nation and on websites worldwide. You can read all his past columns and see continuing updates at http://www.jimbrownusa.com
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