Savings and Moans

by Jeremy Alford

Louisiana bankers are worrying about the insurance industry.

More than 40 bankers descended on the State Capitol last month, awaiting meetings with committee heads and filling the hallways with pinstriped power suits and Blackberries. But the chatter among industry leaders was markedly different than past years; instead of interest rates and equity loans, talk turned to property insurance.

It was no coincidence that this year's lobbying day for the Louisiana Bankers Association, which drew the largest number of participants in recent history, featured a keynote speech from Insurance Commissioner Jim Donelon.

"It's not sexy or all over the news, but this is a very huge issue for us," says David Boneno, general counsel to the Louisiana Bankers Association. "You can't write loans without the insurance, and some companies have already stopped writing policies altogether. This could drive up the cost of transactions for everyone."

The LBA is usually a quiet force in the Legislature, but its fundraising and lobbying tactics have grown more sophisticated. LBA has become the unofficial backbone of the Coalition to Insure Louisiana, a broad group of professional associations and white-collar businesses ' banking, real estate, insurance, accounting, contracting, auto dealerships and more ' whose main mission is to keep insurance available and affordable. LBA's state PAC has almost $53,000 in its coffers, and its PAC for federal lobbying contains almost $37,000.

The insurance bill deemed most detrimental by the LBA to regional economies in the state was Senate Bill 693 by Benton Democratic Sen. Robert Adley. It would have repealed the "flex band" law that was enacted several years ago. The law allows insurance companies to increase or decrease their rates up to 10 percent a year without seeking the approval of the Insurance Rating Commission ' the only state entity in the nation that still oversees rates in such a way.

The flex band provision also forces insurance companies to justify their changes with the state Department of Insurance. The LBA and its coalition were successful in killing the measure but are standing guard for any unexpected surprises in the final weeks of session.

Repealing the flex band law would have sent a terrible signal to any company doing or considering doing business in Louisiana, says Guy Williams, president of Gulf Coast Bank and Trust, which has ATM and branch locations stretching from Acadiana into East Baton Rouge Parish and through the New Orleans region. Williams, who has spent considerable time at the Capitol this session lobbying the issue, also believes any move to strengthen the rating commission or give insurance companies another excuse to leave the state should be considered dead on arrival.

"Louisiana has a backwards way of approaching these things," he says. "It's all anti-competitive. We're letting a group of people who have no interest in the industry make these decisions. I fear the Legislature is moving in the wrong direction."

During the same committee meeting where the LBA killed the flex band bill, the group gutted legislation that would have offered consumers different options in suing insurance companies.

The association is also bitterly fighting to alter House Bill 448 by New Orleans Rep. Charmaine Marchand. HB 448 requires the Office of Financial Institutions to educate the public following another natural disaster on their loan payment options if regulators again encourage forbearance, or later payments. New additions to the bill provide that lenders obtain written approval of the borrower if the entire principal and interest is due after the forbearance period, which was 90 days following the fall hurricane season in most cases.

Loan defaults were a major concern last year, but fears subsided a bit in January when payments came due and deposits into banks started increasing again. "We learned just how resilient the banking industry was and how willing consumers can be," Williams says.

As the current legislative session hits its final stride this month, the LBA is also opposing a set of bills that attempt to keep insurance proceeds resulting from damaged homes from being seized for other debts ' and out of the hands of lenders. On the other end of the spectrum, the group has thrown its support behind legislation that requires insurance agents and brokers to have three hours of continuing education dedicated just to flood insurance.

One of the most significant policy issues still looming is the state's housing plan, which recently received approval from the federal Housing and Urban Development agency. The nod comes with $4.6 billion from HUD's Community Development Block Grant program, but another $4.2 billion is needed from Congress to fully finance the housing plan. In theory, homeowners would use the money to make repairs, rebuild or participate in buyouts.

Previous versions of other housing plans promised bankers and lenders 60 percent of what they were owed, or completely left them out of the process. Under the state's plan, the devil is in the proverbial details, and many in the industry still don't know what they are.

"The banks aren't crying and telling us they are having problems," says Boneno, "but many are waiting to find out about the fine print on many issues, like the recovery plan. These things will need to be clarified before any major decisions about the future can be made."