Louisiana insurance crisis sparks ‘most ambitious’ reform package

Louisiana Insurance Commissioner Jim Donelon calls the next phase of plans to stabilize the state's homeowner insurance market "the most ambitious reform we've attempted to achieve in my 17 years as insurance commissioner."

Notably, the package of property insurance reform gives lawmakers a second stab at the Louisiana Fortify Homes Program, which fortifies roofs against high hurricane and tropical storm winds. The Legislature declined to fund the program last year.

Donelon, who is not running for re-election, is putting a full-court press on legislators to find the money this time. The program would provide grants of up to $10,000 for homeowners to retrofit their roofs to standards set by the Insurance Institute for Business and Home Safety.

The initial budget request is for $20 million, said state Rep. Mike Huval, chairman of the House Insurance Committee.

"One thing that we cannot pass a law against in our state is to keep hurricanes from coming. They're coming," Huval said. "I believe this program will help a lot of folks resist storm damage in the near future while potentially reducing residential property insurance costs our state in the longer term."

Insurance crisis

Louisiana is wracked by an insurance crisis that much resembles the crisis that followed Hurricane Katrina and Hurricane Rita in 2005: insurers are leaving the state rather than risk huge losses that accompany major storm and hurricane events.

So far, 11 insurers have gone broke and another dozen or more stopped selling policies, leaving desperate homeowners to rely on the state-run insurer of last resort, Louisiana Citizens Property Insurance Corp. As the insurer of last resort, Citizens is required by law to charged 10% higher than the highest private insurer in each parish.

Donelon successfully steered the first phase of his plan to lure insurers back to Louisiana – via financial incentives – through the legislature earlier this year.

The incentive program works like this: Insurers that agree to do business in the state are eligible for matching grants between $2 million and $10 million. Approved insurers must then match that amount and write $2 in premium for every dollar accepted. The ultimate goal is to transition policyholders from Citizens back to private insurers, Donelon has said,

Donelon provided an update Tuesday on the status of the incentive program. Eight insurers have been approved to receive $42 million, Donelon said, resulting in nearly $170 million in new premium written.

"I anticipate that we will see 40,000 policies come out of Citizens by the end of the program's first year and 50,000 additional new policies written during that time," the commissioner added.

Don't be like Florida

The remainder of the property insurance reform package focuses on legal reforms. Donelon stressed the need to learn from the lawsuit culture in Florida and how it played havoc with the insurance market. About 9% of homeowner property claims nationwide are filed in Florida, yet 79% of lawsuits related to property claims are filed there.

"Most of the insurance companies that failed over the past two years were either based in Florida or wrote the bulk of their policies in Florida," Donelon said. "The state's poor legal environment for insurance drove insurance companies to safe harbor in Louisiana and other coastal states."

The Florida Legislature passed a bill last month making it much harder to sue insurance companies.

"Because of these recent changes in Florida, I expect those bad actors actors to target Louisiana homeowners next," Donelon said. "In fact, we're already seeing it."

Proposed legal reforms include:

• Preventing unscrupulous companies from being able to file lawsuits on behalf of homeowners. This behavior drove much of Florida's insurance lawsuit crisis. Huval's bill would permit insurers to require a sworn proof of loss statement and establish a two-year statute of limitations for policyholders seeking penalties and attorney fees.
• Another proposal would allow homeowners to ask a public adjuster for a second opinion on damages.
•  Legislation requiring insurance companies to discount premiums for homes that retrofit roofs to comply with the fortified home or fortified commercial standards.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.