La. commissioner proposes $100 million fund to lure insurers to state

Louisiana Gov. Kathleen Blanco has set aside $100 million in her budget to cover insurance issues and state Commissioner of Insurance Jim Donelon thinks it should be used to lure more property insurers to Louisiana.

Donelon has proposed legislation for the 2007 legislative session he says would increase the availability and affordability of property insurance and decrease the market share of Louisiana Citizens Property Insurance Corporation, the state’s property insurer of last resort. According to the Louisiana Department of Insurance, the proposal would add $400-$600 million of property insurance capacity.

The Insurance Capital and Surplus Match Incentive Program would use a $100 million state fund to provide incentives to qualified insurers to commit new capital for writing new property insurance policies and increase market capacity in Louisiana. Under the plan, carriers would receive payments from the fund for writing coastal properties. Sen. Ken Hollis, R-Metairie, a member of the Senate Insurance Committee, is expected sponsor the bill that would create the fund.

The department said the details of the plan include:

• Propose a legislative appropriation of $100 million.
• To qualify, insurance companies would have to meet certain capital and reinsurance requirements and have experience writing property insurance.
• The state would match participating companies dollar for dollar.
• The minimum capital commitment for an insurance company is $2 million.
• The maximum matching fund is not to exceed $10 million per public offering, with a second public offering allowed if all funds are not used in the first offering.
• Participating companies must use the capital and surplus and the state matching grant to write new property insurance policies in Louisiana for a minimum period of five years. If an insurer fails to comply with the requirements, it must repay the remaining state matching funds on a pro rata basis.

The fund is supported by the Louisiana Association of Business and Industry, a pro-business lobbying group. In a letter on the association’s Web site, www.labi.org, its director, Dan Juneau, wrote that of the many proposals expected to be introduced in the coming legislative session, Donelon’s proposal makes the most sense. “The most ideal option is to encourage more property insurance carriers to write policies, thereby spreading the risk more widely within the private sector,” Juneau wrote. “That can be done by developing incentives for the missing link in the industry in Louisiana: mid-sized regional carriers. … Carriers like these have been missing in Louisiana since Hurricane Betsy, but a plan is being developed that may succeed in recruiting them to help alleviate our crisis.”

A $100 million cat fund?
Meanwhile, the Associated Press reported that Minneapolis-based Paragon Strategic Solu-tions has released a study on how Louisiana might operate a catastrophe fund established with $100 million in state money. Such a fund would provide reinsurance to insurers with homeowners policies along the coast. Reinsurance would kick in after $1.25 billion in industry losses.

Paragon administers the cat fund created in Florida after Hurricane Andrew hit that state in 1993. Associated Press reports contributed to this article.