31 May 2006

Committee action, May 31: SB 732, SB 620, SB 707, SB 693

SB 732 would change the composition of the board of the Louisiana Citizens Property Insurance Corporation, which is the insurer of last resort in the state. Author Sen. James David Cain, in his testimony in front of the House Insurance Committee argued the changes would make the board more professional and less political in its actions and expenditures. Chiefly bothering proponents was its paying for a lobbyist (a former member of the Legislature who also lobbies for private insurers) and generally that it was too politically connected in its potential competition with other insurers. After amendments, the bill was reported favorably by consent.

SB 620 and SB 707, both by Sen. Edward Murray, attempt to tighten restrictions and penalties concerning disputes between insurers and consumers. They argued there was too much room to absolve themselves of paying claims, or not enough incentives to in good faith settle or negotiate. Opponents objected to the broadening redefintion of terms such as “bad faith” and allowing third-party claimants. They said current laws and penalties were adequate and that these pieces of legislation would drive up prices through increased numbers of lawsuits and simultaneously discourage writing policies in the state.

SB 620 was reported favorably by a 10-4 vote, after an amendment that would have weakened the application of penalties failed by one vote with Democrats voting against and Republicans in favor (although two Republicans absent, Reps. Tom McVea and Jim Tucker, might have swung it the other way).

Supporters said these protections were necessary for consumers. Concerning SB 707, Rep. Cedric Richmond said the bill only brought fairness to the process. But Rep. Shirley Bowler thought the provisions of this bill would negate the “no pay, no play” philosophy prevalent in Louisiana insurance legislation that would encourage suits the consequences of which could create huge expenses for insurers in many areas.

For SB 707, Vice Chairman Taylor Townsend suggested amending out the third-party claimant portion might overcome opponents’ objections. However, supporters said these objections were overblown. They brought a number of witnesses and their lawyers, the latter of who said additional teeth were necessary to make insurers (interestingly, most stories concerned the state-owned Citizens) pay up on asserted legitimate claims they alleged were being denied.

Tucker, returned from a Senate committee, argued the bill went too far, that it was really a problem of individual insurance companies that needed to be overseen more effectively. The bill’s approach, he argued, would inflate costs because it would make it easier to introduce legal expenses into the process.

Townsend did offer an amendment he said would allow only those with some connection, first parties, to the claim could bring action. It was adopted by consent. Rep. Troy Hebert offered an amendment to make remove catch-all language describing bad faith behavior, saying they needed to balance between punishing legitimately bad behavior but also to discourage frivolous actions that could affect availability of insurance. It was adopted by consent.

Richmond moved to report the bill, arguing it would make only bad-faith insurers leaving the state while helping those in need. Johns offered a motion to defer. This time, with all members present a straight party-line vote of the 10 Republicans passed this motion over the objections of the 8 Democrats, thus involuntarily deferring the bill.

SB 693 would remove the requirement that insurance companies could increase rates by as much as10 percent higher without Insurance Rating Commission approval. Author Robert Adley confessed his bill “didn’t look too good” after the discussion on the previous ones, but said in the new realities of the post-disaster environment meant the Commission should look at every rate increase request, because over time they can accumulate to high relative levels of increases.

Rep. Ronnie Johns pointed out that the flex-band policy actually encouraged lower rates, because companies were not afraid that, if conditions changed from those that allowed them to reduce rates, that then they couldn’t raise rates later under adverse conditions, “because there’s not a more political board in this state” than the Commission, he argued. This made for increased competition, thus lower rates.

Adley argued nonadmitted (that is, not state-guaranteed in case of insolvency) already were providing competition because of lower rates. But Johns said that was fine if you were foolish enough to take that chance, you could. He also pointed out that the existing process was open and documented. Adley said the flex-band cutoff was meaningless because of the Citizens Corp. assessment being passed on to consumers with policies for admitted companies, so why not have the Commission review everything?

Rep. Dale Erdey said experience and research showed the flex-band procedure worked to lower rates. In fact, in all areas but property and casualty, there was no regulation so this would be a step backwards. He echoed Johns’ comments about how even this session a bill had advanced to get rid of the Commission (the only such body in all 50 states) which he saw as a benefit.

Opponents testified about the anti-competitive nature of the measure. Adley said he’d done what he could to decrease rates. Tucker moved to defer the bill, the motion passing 12-4 with some Democrats joining all Republicans voting for this. “Closer than I thought,” Adley joked.

THURSDAY: HB 145 is scheduled to be heard by the House Committee of Labor and Industrial Relations.

We can get a thousand insurance companies in here tomorrow, if we didn’t make them pay claims.
Richmond, in response to insurance industry representatives saying SB 707 would discourage companies coming to Louisiana, to applause.

As you known, Rep. [John] Alario is pretty good at shooting down good ideas that the [Blanco] Administration doesn’t like.
Tucker, noting the protectiveness of the budget bill by its House sponsor, when saying the proper solution to rate increases was using nonrecurring additional revenues to make up for Citizens’ insurance losses, not by passing them along to ratepayers.

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