A bill that would allow Louisiana’s state government to use $100 million in taxpayer money to offer incentives for insurance carriers to write homeowner’s policies in the state’s southern regions is moving through the legislature and Insurance Commissioner Jim Donelon, who backs the plan, says carriers have expressed interest in it. He says at least half a dozen companies have shown interest in participating in the Louisiana Incentive Program.
“I’m very encouraged that it will be fully utilized and will have a great impact on stabilizing our market,” Donelon told Insurance Journal.
The plan was originally developed by the Louisiana Association of Industry and Business, and patterned, Donelon said, after a program the state has utilized with some success to attract other industries, such as manufacturing. Three years ago with the help of the incentive program, the state was able to attract to Alexandria, in central Louisiana, the Union Tank Car Manufacturing Plant, which “is now employing 900 workers in a high paying workforce,” he said.
To be eligible for the $100 million grant program, insurance companies must apply for it and have on hand a minimum of $25 million in surplus. Carriers also must “have a willingness and ability to match whatever amount of money we give them in a grant — between $2 million and $10 million,” Donelon said.
“Take $10 million for example. If we give a grant to a company of $10 million, they will be committed to matching that with $10 million of their own and writing, by the terms of the program, new business on a premium basis of two to one. … They would be obligated to write new business totaling $40 million in new premium in property coverage, of which 25 percent or $10 million must come from the Citizens [Property Insurance Corp.] book of business, the residual market.”
And they must hold onto the business for a five-year period. If not, they will be required to repay that part of the grant for which they did not meet the qualifications. If fully utilized, the program would generate $400 million in new premium, “which is 15 percent of our total marketplace,” Donelon said.
In late June, the Senate Finance Committee amended House Bill 678 to give the legislature’s budget committee the power to block the grants to insurers if they see the need to do so, the Associated Press reported. The bill originally gave lawmakers no influence in the process. The amended measure would allow the insurance department to approve the grants, contingent upon final approval from the budget committee.
LIRC no more?
Other legislation Donelon said he favors would abolish the Louisiana Insurance Rating Commission and transfer its regulatory functions to the insurance department. Donelon said he has long supported such a move, both as a state legislator and a regulator.
“I believe it’s way past time for us in Louisiana to get past that last vestige of our bad old days where we saw three straight commissioners end up in federal prison and our reputation for unsavory politics was a deterrent to companies coming to our state to do business,” Donelon said. “This last vestige being done away with will, I think, send a very positive message to the industry that Louisiana is a better place for them to look to for writing new coverages, in particular as they exit the Florida market.”
He said if the bill passes, and he believes it will, the state will use “a file and use system where I’ll have 45 days to act on rate requests or they will be approved. … We’re going to replicate what exists in the majority of states.”
One measure Donelon says the insurance department has stated opposition to is one that would privatize the Citizens book of business.
“I wouldn’t have any problem with that but I think it would interfere with our other efforts to depopulate the Citizens book of business — interfere with it only by slowing it down,” Donelon said. “If there are companies, and there are some expressing interest in taking policies out — some or all — we would be thrilled to have them do that. But we don’t want to slow down our program of bringing companies to our state and requiring that they depopulate with some of those grant dollars we discussed earlier. We don’t want to slow down the positive effects from that program.”