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Jan 30, 2007
NEWS: Blanco traveling to woo insurers to La.

Periodically, the press office will publish editorials and columns that feature Governor Blanco's work in various areas.

Time Picayune (online):  News:  Blanco traveling to woo insurers to La.
Published January 29, 2007

California meetings to tout flood control

Gov. Kathleen Blanco flew to California on Sunday to urge a large group of high-level insurance executives to come to Louisiana to write policies, and to explain to the computer modeling companies that make the projections that insurers use to set rates why their forecasts are too harsh and are hurting Louisiana.

Blanco has been invited to address the 43 insurance executives on the board of the Property and Casualty Insurers Association of America at the group's quarterly meeting near Palm Springs, Calif., on Wednesday. Insurance Commissioner Jim Donelon will join her for the presentation.

While she is on the West Coast, she will meet with the computer modeling company Applied Insurance Research Worldwide Corp. today in San Francisco.

On Tuesday she will meet with Risk Management Solutions Inc., the creator of two controversial models on hurricane risk and flooding in New Orleans that show dramatic increases in risk and that, if approved, will allow insurers to justify continued increases in insurance rates.

"I think that it's important that they know what we're doing to mitigate risk," Blanco said Saturday. "We have a very strong story to tell."

That tale is a wide-ranging narrative that goes far beyond insurance regulation to depict a long-term commitment to hurricane risk mitigation in Louisiana to create a better market for insurers.

Blanco will tell insurers about coastal restoration efforts paid for by offshore oil and gas revenue; comprehensive levee improvements under the watchful eye of new professionally managed boards; and broad-reaching community planning that encourages people to consider the risks of their neighborhood's geography as they decide whether to rebuild, forces them to do so under the terms of the new statewide building code, and provides resources to elevate houses and fortify them with storm shutters and roof ties via hazard-mitigation grants from the Louisiana Recovery Authority.

The trip is the highest-level and most intense effort to date by Louisiana elected officials to try to solve the state's property insurance crisis.

Blanco said she was inspired in part by the success of the St. Paul Travelers Cos. Inc. intervention in December, when she and Donelon quickly pulled together a briefing on levee improvements and coastal restoration efforts when it became clear that the state's largest commercial insurer planned to drop all commercial property coverage in the New Orleans, Lafayette and Lake Charles areas.

Their efforts were backed by phone calls from federal Gulf Coast recovery coordinator Donald Powell, and within weeks Travelers had greatly scaled back its plans to drop policies.

"I was pleasantly surprised that we got that kind of response," Blanco said. "It encouraged me more."

Major changes in Florida

Aside from all the hazard-mitigation efforts in Louisiana, Blanco suddenly might find herself with a more receptive audience and additional negotiating leverage with insurers thanks to a dramatic reversal of fortunes in the Florida Legislature.

In a special legislative session on insurance this month in the nation's most hurricane-prone state, newly elected Republican Gov. Charlie Crist and the Republican-controlled legislature did a 180-degree turn away from the pro-business efforts to help the insurance industry that have dominated since Hurricane Andrew in 1992. They approved a spate of consumer-oriented reforms that one Florida newspaper described as "Ralph Nader-esque."

Insurers say Florida destroyed its insurance market by rolling back rate increases for the state's insurer of last resort and increasing the obligations of the state-run catastrophe reinsurance pool without adequate financing, essentially putting the state in competition with the private market. Insurers say the state's credit rating is now in jeopardy, and that the experiment will have dire consequences and ultimately will prove anticonsumer.

The insurance industry didn't see it coming, and rattled insurers want to make sure the revolt doesn't spread to other states.

Florida was the talk of an educational meeting between insurance industry experts and members of the Louisiana Legislative Women's Caucus on Saturday in New Orleans.

'A very big wake-up call'

Separately, the Property and Casualty Insurers Association said it has invited governors and insurance commissioners from time to time to address its board meetings, but it asked Blanco and Donelon to be its guests because of the situation in Florida.

"What we really want to talk about is how we can avoid the whole situation that's happened in Florida happening in Louisiana," said Joseph Annotti, vice president of communications for the Illinois-based Property and Casualty Insurers group. "We would like to hear from Gov. Blanco and Commissioner Donelon, who have been doing everything they can to spur a private-market solution."

Annotti said his group thinks the industry can work with state government to find ways to reduce the insurance burden on taxpayers by establishing well-designed catastrophe funds, involving the federal government and taking other measures.

"What happened in Florida was a very big wake-up call to us," he said.

Indeed, Donelon said Saturday that his goal to talk with a dozen insurance companies that don't operate in Louisiana by March got a big lift because of what occurred in Florida.

In the two weeks since the Florida legislative session, four companies -- North Pointe Insurance Co., Cincinnati Insurance Co., Bankers Insurance Group and Meritplan, a division of Countrywide Financial Corp. -- have talked to Donelon about doing business in Louisiana.

Advantages in La.

Couple the Florida legislative session with the likelihood of a massive State Farm litigation settlement in Mississippi, and suddenly Louisiana can look like the model of rational, moderate behavior.

That environment creates the perfect platform for Donelon's message: that after getting hit by the most expensive disaster in U.S. history in 2005, Louisiana hasn't wavered in its commitment to the market reforms it began in 2003 with the creation of a system that allows companies to freely adjust rates by less than 10 percent, and that the state has now set its sights on abolishing the outmoded Louisiana Insurance Rating Commission.

Donelon also says post-Katrina Louisiana is a better place for insurers to do business than it ever was, because just about every house in the southern part of the state has a new roof, and any trees that were in danger of falling are now sawdust and pose no risk. Plus, with so few companies writing policies in south Louisiana, insurers now have their pick of customers.

The Property and Casualty Insurers Association represents more than 1,000 companies that collectively write almost 40 percent of the property and casualty insurance in the United States.

Annotti said 53 companies sit on his group's board -- though not all of them are homeowners insurance companies -- and at least 42 plan to attend the Palm Springs briefing.

Crucial modeling methods

Though the Property and Casualty meeting could be high-payoff, the meetings today and Tuesday with the computer modeling companies are high-stakes.

Modeling companies create computer programs that allow insurance companies to simulate thousands of storms from different directions barreling at the homes in their portfolios. By seeing how well the homes in different locations and different styles of construction stand up to the fictional storms, insurers can determine their risk and figure out what rates they need to charge to have enough money to cover potential losses.

The company Blanco will meet with today, AIR Worldwide, has stuck with the traditional method of building its models using storm data dating back to 1900.

But the subject of her Tuesday meeting, RMS, last spring unveiled a new model for insurance companies that chucks a century of weather history in favor of basing projections on the past five years of storm experience. Because that period includes the 2004 and 2005 storm seasons -- two of the most active hurricane seasons on record -- the result is dramatically higher projections of future hurricane risk. Indeed, a news release in March said that by using the new model, projections of annual insurance losses in the Gulf Coast, Florida and the Southeast would increase by 40 percent.

Last spring the Consumer Federation of America called the new RMS models junk science for profit and said "RMS has become a vehicle for collusive pricing" by the insurance industry. It urged insurance commissioners across the country to reject use of the new RMS models.

Risk analysis 'flawed'

Two of the four high-profile scientists who were consulted by RMS in forming the new model told The Tampa Tribune newspaper this month that their comments on hurricane risk were misused, and they called the model "flawed." The American Association for the Advancement of Science also weighed in, criticizing RMS for putting the model into commercial use before it had been peer-reviewed.

Gov. Crist and other top Florida officials now are calling for additional scrutiny of the model, a potentially disastrous development for RMS because most other states, including Louisiana, rely on the certification of the Florida Commission on Hurricane Loss Projection Methodology before models can be used.

In the Tampa newspaper's series, RMS said it stands by its model as an accurate way to project storm risk in an age of increased hurricane frequency and intensity, and that all the scientists signed off on the process the company used.

In December, RMS released another program, its first-ever model of flood risk in New Orleans. The report talks about land subsidence, increased hurricane activity and rising sea levels from global warming -- but doesn't take into account the Army Corps of Engineers' improvements to the region's flood protection system since Katrina.

Upon its release, Donelon said RMS' failure to note the more than $1.1 billion spent on improving the levees "calls into question the validity of their report."

Talks critical to recovery

When she returns from California, Blanco plans to schedule meetings with the other two major U.S. modeling companies and hopes to consult with other insurance executives at the Reinsurance Association of America's catastrophe modeling conference in New Orleans on Feb. 13-16.

Blanco said these insurance meetings are critical to Louisiana's recovery.

"I think that they've overreacted and it's crippling us," she said. "I am attempting to get them to lower their level of anxiety about insuring Louisiana and hopefully influence the rates downward. If that doesn't happen, we're not going to have a serious recovery. We're going to have a partial recovery."