Seeking a way to ease skyrocketing federal flood insurance rates, state Treasurer John Kennedy has suggested that Louisiana should consider getting in the business of offering flood insurance coverage to its residents.
Kennedy said state officials should look at creating a state-run flood insurance company, similar to the way Louisiana years ago created corporations that offer property insurance and worker’s compensation coverage for those who can’t get it on the private market.
He said those companies helped stabilize the state’s markets for both types of insurance.
The rates charged through the National Flood Insurance Program are slated to rise steeply for many homeowners around the country, including Louisiana, as part of a bipartisan overhaul of the program passed by Congress last year to cut the federal government’s costs.
Members of Louisiana’s congressional delegation are seeking to keep lower rates in place, but that has stalled in Congress. Kennedy said the state needs a backup plan, rather than face the devastating effects that officials worry will come with dramatic flood insurance increases.
“The only plan we have to deal with this problem seems to be to put ourselves at the mercy of Congress. … It doesn’t look to me like they’re able to pass anything up there,” Kennedy said.
The treasurer said he wants to start a conversation about the possibility of a state fix, acknowledging he’s not sure what might work.
Gov. Bobby Jindal and Insurance Commissioner Jim Donelon weren’t swayed by the idea.
Jindal spokesman Kyle Plotkin said in an email that the governor supports the congressional delegation’s efforts “to fix this at the federal level where the problem started.”
Donelon said: “I think it’s a very risky and pricey proposition for the state to get involved in the flood insurance business.”
Kennedy suggested a structure that could have people and businesses pay for flood insurance from a state-run company that would provide claims coverage up to a certain cap, with federal flood insurance kicking in to pay claims beyond that cap amount.
Homeowners and businesses would have to pay two sets of flood insurance premiums, to the state-run company and to the National Flood Insurance Program.
But the treasurer said the two-tiered system could cut the risk to – and therefore, the premium costs charged by – the federal flood insurance program because it would serve as a sort of catastrophic backup insurance.
He said the state-run company could consider hurricane protection measures and flood risk differently than the federal program does, taking into account things like locally-built levees that may reduce flooding risk and lower premiums.
People and businesses in Louisiana have 500,000 policies through the National Flood Insurance Program, the third highest number in the country.
With the current rate hikes, Kennedy said flood insurance costs could devastate south Louisiana’s economy. He said either people will spend so much on insurance that they cut spending everywhere else, or people could get priced out of their homes entirely.
“Obviously, the preferred remedy here is for Congress to go, `We didn’t mean to do this,”‘ Kennedy said. “I’m just saying, what’s the plan other than to complain if Congress doesn’t come through?”
While he wasn’t confident Congress would help lower rates, Donelon also said he thought Kennedy’s idea was impractical.
He said it would involve another act of Congress to restructure the federal flood insurance program to work with Louisiana’s approach. He also said he wasn’t sure the premium rates would be any cheaper if a state-run insurer got involved, without the state putting up a sizable amount of money to subsidize coverage.
But the chairman of the Senate Insurance Committee, Sen. Dan “Blade” Morrish, said Kennedy’s concept was a strong starting point for discussion. He said such a program could possibly be an arm of the state-run property insurer of last resort, the Louisiana Citizens Property Insurance Corp.
“I think that’s a really good place to start. I wish I had thought of that. I’m not sure it would work, but it’s a good conversation,” said Morrish, R-Jennings.
Morrish said state officials would need to look at whether a state-run flood insurer could keep premiums lower than the federal flood program while also ensuring the company has enough money to pay the claims.
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