Editorial: A tangled web by insurers in Louisiana

The story Louisiana homeowners have often been told about the skyrocketing property insurance premiums they face goes something like this: Due to storm-related losses in recent years, several insurance companies that wrote policies in Louisiana left or went bankrupt. The remaining insurers raised rates to cover their spiraling reinsurance and other costs.

To reverse the trend, we are told, homeowners will need to fortify their roofs and stop all those pesky lawsuits, and maybe — maybe — insurers who've abandoned the state could be enticed to come back and new entrants could be attracted to the market, making it more competitive.

But now we know the rest of the story. An investigation by this newspaper's Sam Karlin showed there was another factor at play in the insurance market: 11 of the 12 insurers that failed in recent years operated under a structure that allowed limited oversight over where money from customers' premiums was going.

The structure allowed them to send hundreds of millions of dollars to affiliates. Where insurance companies have to regularly open their books to regulators, their affiliates do not. And while the practice is legal, several experts cited in the report said that it makes it difficult to tell where the money went, and whether the companies were siphoning off cash that could have been used to pay claims or buy more reinsurance.

Often with this structure, executives work for the affiliate and as well as the company that is bearing the risk. Using the affiliate structure makes it easier to relay profits to investors, which some argue is the only way to get companies to write policies in the state.

The companies that went bankrupt insured some of the riskiest properties. The report found those companies took almost three-fourths of the policies transferred between 2008 and 2020 from Louisiana Citizens Insurance Corp., the state's insurer of last resort. But when they went belly up, taxpayers were back holding the bag.

No one denies the complexities of the insurance market. State regulators noted that several companies with a similar structure also failed. And surely, the storms of 2020 and 2021 were more costly than expected.

There's also little opposition to incentives designed to encourage building stronger. Certainly, homeowners doing anything they can to mitigate their risk is a good thing.

We have welcomed efforts by the state to shore up the private insurance market. Insurance Commissioner Tim Temple seems to be championing an approach that would use a wide range of tools to work with the industry to make changes that make sense, although we have yet to see a detailed plan.

But let's make sure before we make any changes that we understand exactly what went wrong — and not embrace solutions that will leave coastal homeowners who've borne the brunt of this crisis twisting in the wind once again.