According to Jim Donelon, Chief Deputy Commissioner of the Louisiana Department of Insurance (LDI), the answer to the homeowners’ insurance crisis in Louisiana is to move to a file and use rating system, and to change the nature of the state’s Insurance Rating Commission.
The man who refers to himself as Acting Commissioner J. Robert Wooley’s Dick Cheney—and “the lone Republican in a Democratic enclave”—agrees with his boss that the days of the rating commission’s power to set rates should be ended.
Louisiana has only 12 companies south of Interstate 10 willing to write homeowners’ coverage, primarily due to that part of the state’s exposure to damage from hurricanes and high winds sweeping off the Gulf of Mexico. Through its high-risk pool, Louisiana is the state’s fourth-largest home insurer.
“As with Florida and the rest of the Gulf Coast, as well as with the Southeastern Atlantic Coast, companies are very scared to write wind damage protection in areas exposed to hurricanes,” Donelon said. “And it’s worse for this reason: We have more frontage on the Gulf than do Alabama and Mississippi. Our major metropolitan city, New Orleans, sits right on the Gulf.”
Of course, Florida has many more miles of frontage than does Louisiana, but the Sunshine state has a wind pool in place, where the state acts as a reinsurer on wind damages and leaves other homeowners’ coverages to private carriers. Florida has accumulated $5 billion in its wind pool, Donelon said, and the LDI is exploring a similar pool for Louisiana.
According to Donelon the primary obstacle to lower homeowners’ premiums is a politicized Insurance Rating Commission. “It is obviously a deterrent to more companies coming to write business in Louisiana for all of the regulated products—auto, workers’ comp, title insurance—that require rating commission approval, or rate-setting,” Donelon said.
During Republican Gov. Mike Foster’s first year in office, 1996, the commission approved rate increases for State Farm Insurance Co. Foster fired the entire board immediately and appointed a new board in addition to a couple of holdovers. Ever since, Donelon said, rating commission members are “very much looking over their shoulders at [the governor’s] political interests.”
There are only two states with rating commissions in place—Louisiana and Oklahoma. And in spite of tight control over premium hikes, Louisiana has the eight most expensive auto insurance rates in the country.
“That’s evidence of the fact that regulation does not work,” Donelon said. “The political attempt to control rates is counterproductive. Companies then shy away from a market and the ones left are able to charge more for their product.”
What Donelon and Wooley would like to do is change Louisiana to a file-and-use state, which is currently the system used in 20 states. Under that scenario, an insurer would file for a rate increase or decrease and the insurance commissioner would have 30 days to approve or disapprove the change.
An insurer unhappy about the decision could take its case to the rating commission, which would act as an appeals body. Donelon, who served in the Louisiana legislature for 20 years, proposed a file-and-use bill during his last term, only to have the bill vetoed by Foster. He has indicated he would do the same again, Donelon said.
Foster has enacted some “tinkering,” allowing insurers who lower their rates to automatically increase them to their previous level, for example. Previously, even during soft markets insurers did not want to reduce premiums for fear they would not be able to increase them again during hardened conditions.
Foster has said he might support a flex-band proposal which would allow insurers to easily change rates up or down within a given percentage—perhaps 15 percent—but no such bills have been pre-filed for the legislative session scheduled to begin March 31.
A drowning company?
Another issue in the news has been the fight of Bossier City-based Patterson Insurance Co. to stay in business. On March 17, the company’s liquidation was ordered by a 19th Judicial Court District judge in the parish of East Baton Rouge, but the bitter feelings over the LDI’s efforts to shut down the company have not waned. The liquidation order applies to Patterson Insurance Company, Patterson Insurance Group, Patterson Premium Finance, Patterson General Agency and Patterson Insurance Group of Arkansas.
Patterson CEO Dale Anderson has accused the LDI of being on a political witch hunt and said his company was not given enough opportunity to pursue a rehabilitation plan as guaranteed under the law. The company also questioned the LDI’s actions on the basis of Commissioner Jim Brown’s conviction on charges of lying to the FBI about an investigation into an allegedly arranged favorable liquidation settlement deal with David Disiere, owner of the now-defunct Cascade Insurance Co. Brown is finishing out a six-month sentence.
The company’s “insolvency is the result of former ownership valuing assets for more than they were worth,” said Anderson, who acquired Patterson five years ago. “That was okayed by Jim Brown, who’s now in the pen.”
Donelon called Patterson’s charges against the LDI laughable.
“If there’s anything we don’t need to be doing in an election year, it’s putting people out of work and closing down insurers,” he said. “It’s a political headache for sure, but it’s our job, and our responsibility, and we will not step back from it. The present leadership of the company has accused us of doing this for political patronage reasons. That is ludicrous. There’s no patronage to be had. There are no secretarial jobs to be given to nieces and nephews and cousins.”
Patterson had been in conservation—that is, directly supervised by the LDI—for the last several months, and is in a $4.8 million hole. The company devised a plan to borrow $2 million from an investor and $6 million from the Louisiana Insurance Guaranty Association (LIGA). The plan was not approved.
“It was creative,” Donelon said, “but LIGA did not buy it. That door closed. We’re not looking to close Patterson Insurance Company. They took a hit from the 1997 hailstorm and the two hurricanes last year that did damage to Louisiana—they were not catastrophic, but they took a toll on Patterson. But the real hit, by Patterson’s admission, was their ventures into other states—Texas and Arkansas—where they lost several million dollars.”
Anderson said while Patterson lost money in its operations in Arkansas, Mississippi and Oklahoma, that was not the cause of the company’s insolvency. “That makes a good story,” he said, “but it’s just not true. Over the last five years, we lost $1 million operationally [outside Louisiana]. That’s not good, but that’s a long way from insolvency.”
Anderson noted it was Craig Gardner, LDI’s deputy commissioner of financial solvency, who came to him with the plan to seek LIGA’s financial backing. But when Patterson’s hearing before LIGA was held, no one from the LDI spoke in support of the plan, according to Anderson, who felt betrayed.
“I knew I couldn’t get the plan through LIGA without their support,” Anderson said. “Why would they suggest we do it and then not support it?”
Anderson complained that the LDI never made it clear what requirements he needed to meet in order to become solvent. “They never said, ‘Raise $5 million and we’ll get off your ass.'” Because of that, Anderson claims he was never able to offer the security to investors he felt was necessary in order to secure the financing necessary to regain solvency.
“You can’t get into a pissing contest with the regulators,” Anderson said. “You’ve got to get along. I just could never get to that level where I felt I knew what they wanted from us.”
Ultimately, both the LDI and a Louisiana district court judge remained unconvinced.
“These are the rantings of a drowning company,” Donelon said.
A painful, ugly past
Whether Patterson has a case or not, that questions about the LDI’s honesty can credibly be broached is a matter of deep concern, Donelon admitted.
“Yes, Jim Brown is in jail. It’s a fact,” he said. “It’s a part of our painful and ugly past. The fact that that has happened cannot be erased or undone. That doesn’t take our responsibility away from us. We’re still charged by law with enforcing the insurance laws of our state. If we were in jail, somebody else would be doing it. That makes us subject to pot shots, but so be it. That’s what the job calls for on our part.”
Donelon said much has been done in the two and a half years since Wooley took office. He highlighted the LDI’s success in improving the turnaround time on form approval, saying that every form submitted is returned within 30 days with a detailed explanation of what needs to be addressed. Each form is returned with the regulator’s name and phone number.
“The industry has been very complimentary,” Donelon said. “It’s a major effort to make us more user-friendly to companies that we regulate in the hope that it will result in more companies coming to do business in Louisiana, not just to make insurance affordable, but also to make it available.”
Not going to run
Donelon’s said he has no plans to run against his boss this fall. Wooley has already announced his intention to run.
“I get asked that all the time,” he said. “It’s not a consideration. Through the next election I’m here to stay.” Donelon said industry representatives have approached him about running since he has a much higher profile because of his days as an industry-friendly Republican legislator.
But Donelon says he rarely has disagreements with Wooley, a Democrat. From credit scoring—where both favor a “mend it, don’t end it” approach, to the proper role of the Rating Commission, Wooley and Donelon are nearly always on the same page.
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