La. Gov. Permits Flex-Rating Bill to Become Law

Louisiana Governor Mike Foster announced Thursday that he will allow the insurance flexible-rating bill to become law without his
signature. Senate Bill 721 will take affect on Jan. 1, 2004.

“Clearly, when companies compete, consumers benefit, and we applaud Gov. Foster for recognizing this important concept,” said Greg LaCost, counsel of the National Association of Independent Insurers (NAII), a strong proponent of the law.

“Repeated attempts to move the state from a politically driven regulatory system to a more competition driven system have failed over the past few years. This measure provides more flexibility to the state’s insurance rate-making process while maintaining government oversight of insurance rates. It will help restore competition to the insurance marketplace, spark existing insurance companies to write new policies and provide the incentive for other insurance companies to enter or re-enter the Louisiana market.”

NAII is a founding member of the Coalition to Insure Louisiana, a broad-based group of businesses and other organizations that supported enactment of Senate Bill 721, and has been pushing other insurance reform legislation.

Gov. Foster said the reason for this legislation is “obstensibly to increase competition and to lower and stabilize rates in the long run,” according to a media statement his office issued Thursday. Foster noted in the statement that he talked with the South Carolina insurance commissioner, who said that competition has increased and rates have stabilized in the state since South Carolina began using the flex-band rating approach.

“Meaningful concessions from some of our major (insurance) carriers have been made to me,” Foster also said in his statement. “They have promised not to abuse this system, have agreed in fact to sell more policies while waiting for competition to come into the state, and agreed to cap rate increases in order to avoid small areas of the state being subject to impossible rate increases.”

“Senate Bill 721 is a modest step toward regulatory modernization, a balance between those who prefer a fully-regulated market and those who desire a free-market approach,” LaCost said. “The proposed flex-rating system would give companies more freedom to charge rates and price products at levels adequate to cover costs and make a reasonable profit, LaCost said. “With this type of incentive, companies would enter or return to the Louisiana marketplace. More companies in the state means a greater variety of products and prices, giving consumers greater choices, better service and better rates than found in highly-regulated markets.”

Louisiana currently is experiencing an insurance availability and affordability crisis. During the past decade, the number of companies offering property insurance coverage in Louisiana has dwindled from about 120 to less than 20-and few of those that remain write new policies. The Bayou State also posts the second highest average property premiums, and the eighth highest automobile insurance rates in the country, according to the NAII.

SB 721 allows insurance companies to raise or lower rates by up to 10 percent within a year without appearing before the Insurance Rating Commission for approval. Rate changes exceeding 10 percent would require approval by both the rating commission and the insurance department.

“While the state’s antiquated rate system has now been addressed, Louisiana must still deal with its network of generous judges and a legal system that prevents many cases from being heard by a jury,” LaCost said. “The current state of Louisiana’s judicial system generates consistently high damage awards that drive loss costs to record levels. Also, the state must consider reform to its over-populated, under-reserved residual market that places an even greater stress on insurers’ financial results.”