Editorial: Louisiana needs a competitive insurance market, but not at the expense of consumer protection

Outgoing Insurance Commissioner Jim Donelon is an unabashed fan of competitive markets. Following Hurricanes Katrina and Rita in 2005, and again after Laura and Ida in 2020 and 2021, he aimed to keep homeowners insurance available and affordable by luring more companies to Louisiana. That philosophy inspired Donelon's push this year to offer state subsidies to companies willing to take on customers in storm-prone south Louisiana.

So, when Donelon says that proposals to loosen insurance regulations — in the name of encouraging competition — must be balanced with consumer protections, we take his concerns seriously. Lawmakers should, too.

Specifically, we agree with Donelon that two bills moving through the Legislature would tilt the regulatory balance too far in favor of insurance companies — and too far to the disadvantage of their customers.

House Bill 569 by state Rep. Francis Thompson, R-Delhi, which is scheduled for consideration by the full House Thursday, would seriously weaken what's known as the "three year rule."

That 1992 law — which is unique to Louisiana — prevents insurers from dropping homeowners who've been with the company for at least three years, except under a narrow list of conditions.

The industry hates it, Donelon said in a recent interview, but it's been key to keeping major insurers from shedding customers en masse after costly disasters. Donelon noted that eight national carriers currently have 61% of Louisiana's insurance market, compared to just 25% in Florida. He said that's "entirely and exclusively because of the three year rule."

Thompson's bill doesn't do away with the rule, but it deletes a provision that prevents insurers from raising deductibles after three years. With 5% named-storm deductibles already common — and even higher deductibles allowed — this amounts to a back-door approach to shedding policyholders by effectively putting them on the hook for major storm damage.

We agree with Donelon that lawmakers shouldn't undermine this important protection for all Louisiana property owners.

Meanwhile, House Bill 489 by state Rep. (and House Insurance Committee chair) Mike Huval, R-Breaux Bridge, awaits Senate Insurance Committee action. Duval's measure would allow companies to raise their rates without prior approval by the Insurance Commissioner, as required under current law. The approach Huval proposes is common in other parts of the country, but not in coastal states vulnerable to major hurricanes.

In explaining his opposition to House Bill 489, Donelon described an application by State Farm to raise rates by 14% after Katrina, He said his actuaries dug into the numbers, discovered that the company was relying on a model focused on future projections rather than past experience, and approved an 8% increase instead.

Huval's proposal would allow the insurance commissioner to reject price hikes only after the fact, and only under certain circumstances. We agree with Donelon that HB489 removes an important protection for policyholders.

One idea in the bill that's worth considering, though, is allowing companies to raise rates more than the current once per year. This additional flexibility, some analysts say, could keep companies from overshooting their actual needs in case a major storm hits.

While this bill has industry backing, at least one business-oriented group is wary.

"GNO, Inc. appreciates the need to give insurers greater flexibility, like the ability to file multiple rate changes each year," says GNO, Inc. President/CEO Michael Hecht. "We believe, however, that efforts to encourage insurance availability must be coupled with consumer protections for affordability, including a limit on automatically approved increases."

That makes sense.

Louisiana needs a healthy, competitive insurance market — but not at the cost of making it difficult-to-impossible for Louisianans to remain in their homes.

That's a losing proposition for everyone.