Louisiana’s insurer of last resort adds 13,000 policies as private insurers falter

Their departures come as insurance companies are failing in numbers not seen in decades. At least six insurers have gone insolvent recently.

As a result, more consumers are being funneled into the Louisiana Citizens Property Insurance Corporation, the state's insurer of last resort. More than 13,000 policies have been added to the state-run organization's rolls since right before Hurricane Laura struck in 2020.

The Louisiana Insurance Guaranty Fund, a nonprofit that steps in to pay certain claims filed with broke insurers, is also charged with clearing some of the fallout. But industry critics say the corporate collapse is an indictment of the state's top insurance regulator, whose main job is to monitor the financial strength of insurers and prevent such abrupt failures.

"If you're offering homeowners and commercial insurance in south Louisiana, then you should be financially prepared for a hurricane," said Eric Holl, a spokesperson for the consumer advocacy group Real Reform Louisiana. He said its unclear why the state allowed ill-equipped insurers to continue to do business.

State Insurance Commissioner Jim Donelon acknowledged in an interview that solvency monitoring is a core job for his department and that consumers weren't well-served in some cases.

"(Monitoring) is our number one responsibility; to protect consumers and primarily do that by making sure companies have the money to fulfill the promises they make when they collect your premium," Donelon said. "In the case of those four companies, we did not accomplish that protection. We're working to improve the system on a go-forward basis."

But he also shifted responsibility to the failed companies themselves.

"The flaw in this last hurricane season is the leadership of the failed companies failing to buy enough reinsurance," he said, referencing coverage companies buy to limit their losses when disasters strike.

Pressure on state insurer

After hurricanes Katrina and Rita ravaged southeastern Louisiana in 2005, resulting in insured losses of more than $29 billion, national firms left the state in droves, Donelon said.

Donelon has held the post since 2007 and helped steer the agency through the difficult years after Katrina, attracting what he describes as "small and regional" insurance companies to fill the void left by big national insurers.

Now some of those same companies — at least five so far, including two that were affiliated — have been placed in receivership, and rely on independent agents to pay their debts and manage their dwindling assets.

The homeowners market is weakening just as the state braces for another active hurricane season, which could lead to a new surge in claims. Federal officials said last week that between 14 and 21 named storms are expected, up to six of which could be hurricanes of Category 3 or greater. The season runs from June through the end of November.

It fell to Donelon to find companies willing to assume policies once held by the failed insurers. He said Safepoint Insurance of Florida has agreed to take most policies held by Access Home Insurance, State National Insurance and Americas Insurance Company.

Meanwhile, Lighthouse Insurance Corporation and its subsidiary, Lighthouse Excaliber Insurance Company, had respective 800 and 29,000 policies when they were taken over by the state, Donelon said. Other insurers have agreed to take on about 22,000 of those policies.

"We're not happy that we couldn't place all 30,000, but 22,000 is better than none," Donelon said, adding that many companies had already bought reinsurance for the year, so they had trouble assessing the potential risk of the would-be customers.

Customers who weren't placed will find it tougher to obtain coverage as some companies quietly stop writing new policies altogether and others pick up and leave.

In October 2020, for example, United Fire and Indemnity told Donelon's office that it would not renew all 2,235 of its homeowners policies. Records show it was the only firm to leave the state immediately after Hurricane Laura.

By the end of 2021, at least five more companies had also dropped their existing homeowners policies. At least two more companies joined them in 2022, records show.

That's another reason the government-run Louisiana Citizens, which is required to charge more than private insurers, is expected to grow in the coming months.

"To be quite honest, we're in a growth mode because (more) people are headed our way. We've depopulated for years," said Richard Newberry, chief executive for Louisiana Citizens.

"There is a repopulation that's happening and that's why Louisiana Citizens is here to be the residual market and that backstop — to stand in the gap during those times of uncertainty."

Four failures, one program

Before Hurricane Laura, most new policies assumed by Louisiana Citizens had been in Orleans, Jefferson and St. Tammany parishes, population centers with exposures to waterways.

The trend flies in the face of a long-held notion that it's riskier for the government insurer to control too much of the market, as it could fail to meet its financial obligations. After Hurricane Katrina, the newly-formed Louisiana Citizens was forced to issue nearly $1 billion in bonds to pay off outstanding claims for some 170,000 households. Residents are still paying for those bonds — and will be until 2025.

To ensure that scenario doesn't happen again, Louisiana Citizens has kept its rolls down every year over the last decade by allowing private companies to assume hundreds, and in some cases thousands, of its policies, a process called "depopulation." Now some of the same companies who assumed that risk have either failed or plan to exit the state.

Access Home Insurance Company, for example, had assumed coverage for 26,000 policies since 2011 when the firm began operating in Louisiana, according to data provided by Louisiana Citizens. The company lost its financial stability rating in October 2021 and was taken over by the state the following month.

Lighthouse Property Insurance, which was forced into receivership this year, had taken out some 19,356 policies, the data show. And the Maison Insurance Company pulled out a little more than 16,000 policies before it lost a financial stability rating in November 2021.

Two other failed companies — Americas Insurance and Excalibur National Insurance Company (later renamed Lighthouse Excalibur after a merger) — also had hands in the depopulation program but to a lesser degree.

Asked whether that program contributed to many firms' failure, Donelon said it could have played a role, but the bigger issue was the lack of adequate reinsurance. The state is considering raising its minimum capital requirement to force more firms to purchase larger amounts of that protection, he added.

State lawmakers passed bills this session that will raise the amount of cash insurers must have on hand from $3 million to $5 million by 2026, and up to $10 million by 2031. Florida, another hurricane-prone state, made that move years ago; the minimum there is $10 million.

"The idea is to have those companies have more skin in the game," Donelon said. "When they're buying reinsurance, I want them to have a lot of money of their own to protect."