Insurance chief up against Louisiana's past

NEW ORLEANS -- James Donelon has a lot of persuading to do.

As Louisiana's insurance commissioner, Donelon needs to persuade insurance companies that they should insure homes in his hurricane-prone state. He needs to persuade consumers that their sky-high premiums may soon descend. And, even though he hasn't been implicated in any wrongdoing, he needs to convince people that he's not a crook.

Three of the past four commissioners went to prison on federal criminal charges, including money laundering and extortion. That's a streak Donelon vows to snap.

"Louisiana has a history that has not served us well," says Donelon, 63, who was elected to the post last year. "It's part of our ugly past. We are working aggressively to change that reality."

Cases of former insurance commissioners sent to prison include:

•In 2001, Jim Brown was sentenced to six months in prison for lying to an FBI agent about a bribery case involving his office. He was acquitted of the more serious bribery charges.

•Sherman Bernard in 1993 admitted to extorting $80,000 from insurance companies in exchange for licenses to sell insurance. He was sentenced to 41 months in federal prison.

•Doug Green was sentenced to 25 years in prison in 1991 for trading regulatory favors for campaign contributions. He was released in 2003.

Despite the office's disreputable past, Louisiana's insurance commissioner today has become one of the most important roles in post-Hurricane Katrina recovery. Katrina and Rita caused about $100 billion in damages to the state, creating the worst natural catastrophe in U.S. history.

Seeking more coverage

After Katrina, insurance premiums doubled or tripled, and many returning residents were unable to get new policies for new homes.

Donelon has a tough role: enticing new insurance companies to sign on policyholders, while guarding the rights of those already insured. Last month, Donelon fined Allstate, the state's second-largest insurer, $250,000 for dropping several hundred customers despite a key consumer-protection law. It was the first post-Katrina fine of an insurance company and the maximum allowed by state law.

"It may be the most important job behind the governor," says state Sen. Donald Cravins, chairman of the Senate Insurance Committee. "Insurance is linked to nearly every facet of recovery in Louisiana."

A New Orleans native, Donelon was elected to the state House in 1982, a position he held until 2001. While in the House, he chaired the Insurance Committee. He later joined the staff of the state Insurance Department.

Nothing prepared him for the colossal challenges unleashed by Katrina in 2005 and beyond, when both residents and insurance companies aimed their gripes at him.

Last month, Donelon was getting his hair cut at a Metairie salon when a female patron overhead him talking and realized he was the insurance commissioner. She pulled her head out from the oversized dryer and, curlers dangling from her hair, criticized and questioned the commissioner about her rising premiums, he says.

Donelon says he listened to the complaints and gave the woman the phone number of his department's consumer affairs office — and his home phone number.

"When that lady's not happy, I'm the right person to go to," he says. "When Allstate's not happy, I'm the right person to go to. For the most part, what we do is reassure residents what their rights are."

Realizing that large insurance companies such as Allstate and State Farm were reluctant to write new policies following the devastating floods of 2005, Donelon says he turned his strategy to drawing smaller, regional companies.

He helped lobby lawmakers for $100 million in incentives for companies writing new policies. He says he hopes to have at least 12 regional insurers operating in Louisiana by the end of this year, siphoning off policyholders from Louisiana Citizens Property Insurance Corp., the state-sponsored insurer of last resort.

Risks still abound

But shifting customers from the state-sponsored insurer to regional companies is risky, says Bob Hunter of the Washington-based Consumer Federation of America. A dozen regional insurers went bankrupt after Hurricane Andrew's 1992 destruction in South Florida, he says.

"It's a good strategy if those companies are solvent," Hunter says. "One of the problems we learned from Andrew is that regional and local companies go under."

Attracting insurers to Louisiana has not been easy. Besides the recurring threat of a storm or floods unleashed by faulty levees, two lawsuits currently being studied by the state Supreme Court could alter the insurance landscape. Clients in the lawsuits claim that insurance companies should cover both wind and flood damage, which could potentially hold insurers liable for billions of dollars more in claims.

Donelon says he also has worked to burnish Louisiana's image outside the state. Besides his three predecessors who have seen prison time on federal charges, state auditors are looking into alleged improprieties by officials in his department under his tenure in 2006, when he was acting commissioner. Donelon says there were abuses but he has fired those responsible.

"We welcome the scrutiny," he says. "If we make mistakes, we don't want to sweep them under the rug. We want to address them and fix them."