Senate panel approves insurance transparency

Legislation to give the public easier access to the relationship between Louisiana homeowner insurance premiums and losses passed out off the Senate Insurance Committee with a two-year sunset amendment Wednesday morning.
Dan “Blade” Morrish, R-Jennings, Senate Insurance Committee chairman, suggested adding a sunset amendment to assess whether the public uses the information and to see if changes need to be made in the legislation after it expires in two years.
Rep. Chris Leopold, R-Belle Chasse, sponsor of the Property Insurance Clarity Act, HB 909, said the legislation is about transparency and ease of accessing information. It is “not necessarily intended to lower rates,” he said, but to make it easier for anyone to access information in a single place and without a public records request; information that is currently available to Department of Insurance.
The bill requires insurance companies provide data to the state Department of Insurance on homeowner insurance losses and premiums by zip code and parish, which the department will publish.
Opponents of the legislation from the insurance industry claim the information the legislation requires to be posted is not enough to give the big picture of how much money insurance companies make or lose on homeowner insurance policies in the state.
George Sutton of Farmers Bureau Insurance said, “I am terribly afraid the information being collected will further confuse the complicated process of rate-making.”
Sutton and Paul Martin, another insurance industry representative opposing the measure in the committee hearing, said their opposition was tempered with the sunset amendment.
Sen. Sharon Weston-Broome called the bill good for the consumer and moved the bill to be passed to the full Senate with a favorable recommendation as amended.
Martin, representing the National Association of Mutual Insurance Companies, and Sutton pointed to similar legislation that went into effect in November in Alabama.
Although the Alabama law has been in operation for only six months, opponents are passing judgment on its value. The two men pointed to a white paper issued by the Alabama Department of Insurance four months after the Alabama Insurance Commission began implementing the law.
Sen. Gary Smith, D-Norco, suggested it is still too early to assess the effectiveness and value of the Alabama legislation.
The Alabama Department of Insurance white paper said implementation of the Alabama law did not provide the commission with any new information and would therefore not affect homeowners’ insurance rates. It affirms the insurance commission’s contention that rates “are not excessive when considering losses, expenses and the necessary profit/cost of capital,” the white paper said.
The white paper expressed the same concern Louisiana opponents have expressed. It said “incomplete and insufficient” information required by the Clarity Act “can too often lead to inaccurate and misleading conclusions.”
The writers of the white paper said the data shows insurance companies in hurricane-prone coastal areas of the state have higher monetary losses per policy that in the northern part of the state.
The same chart shows that while the amount of loss per premium is higher, the amount of money above the loss for each premium is much higher; giving a greater return on the premium in the southern than in the northern part of the state.
Calculating only losses and premiums on typical premiums, according to the chart, showed there was $1,960 left over from a coastal premium but only $80 left over on an upstate premium.
Over a previous 10-year period, calculating all estimated costs to the insurance companies, not just storm losses, including a 5 percent profit margin, leads to a 4 percent loss for coastal areas and an 8 percent loss in the upstate area - if the unusual tornadoes of 2011 tornadoes are removed from the upstate figures, according to a graphic in the white paper.
Since insurance companies premiums were less than cost of doing business during the 2003-2012 period, the white paper concluded that insurance rates in coastal and upstate areas were “statistically inadequate” with rates “undercharged.” The rates were more “undercharged” in the upstate area than the coastal area, the paper said.
The Alabama Department of Insurance concluded that it should not interfere in a private company’s decision to sustain a greater loss in upstate than coastal areas, as long as the department thought the company was financial viable and able to sustain losses.
The difference in upstate and coastal rates compared to cost of doing business “would be unfair if the Coast was being overcharged, but since that is not the case, it is not unfair, but is a demonstration of the free market at work,” the white paper said.