On the record: Why Tim Temple is bullish on Louisiana's property insurance market

Republican Tim Temple will become Louisiana's next insurance commissioner at a time of deep crisis in the homeowner's market. Columnist Stephanie Grace spoke with him recently about what to expect and how his free-market philosophy fits with the office's regulatory and consumer protection mission. The conversation has been edited for length and clarity.

Grace: Let's start with a big-picture question. What is your diagnosis of the problem of companies being reluctant to insure homes here?

Temple: As I travel and engage with stakeholders, I'm trying to reinforce the concept that insurance companies do not have to do business in the state of Louisiana. And so we as a state have to compete for ABC insurance company and 123 insurance company to come in and write.

If a company or reinsurance company does not like the regulatory and the legal environment of a state, then they've got the whole country to pick from. And if a company specifically wants to write hurricane-exposed business in the Gulf Coast, they have five states to pick from.

That means that they're comfortable covering property that's going to be exposed, so then they have to shift down to the next series of questions. Like, what's the regulatory framework? Is there a Department of Insurance that helps insurance companies and consumers, or is it one that is more aggressively tilted toward consumer protection to the point where it's unfriendly to the industry? Then they have to look at the legal environment.

And Louisiana is an undesirable state from both of those standpoints. That's not just Tim Temple's opinion, it's confirmed with having conversations with insurance companies and reinsurance underwriters.

Grace: So where does that lead you in terms of approaching the job?

Temple: My philosophy is that as commissioner of insurance, I work for the people of Louisiana to help make insurance available, affordable and accountable. But in order to do that I have to work with the industry — not for the industry, with the industry. I'm still going to hold them accountable to the rules and regulations, and make sure that they are not taking advantage of consumers. If they're going to take $1 of premium from any individual family or business in Louisiana, they have to be prepared to pay $1 of claim when it's proper, and it's just, and it's legitimate.

Looking to the future

Grace: Let's get right to one of the policies you find concerning, Louisiana's three-year rule (which bars insurers from dropping property owners after three years, except under limited circumstances or if the company stops doing business in the state). Is that on your list for near-term changes?

Temple: I'm not going to ask the Legislature to remove it, because I think that would only create an even worse insurance crisis than we're currently facing. We can't just rip that Band-Aid off; we've got to create what I'm calling a glide slope, a mechanism to allow companies to write the policies that they want to write, not that they're forced to write by law.

I mean, insurance companies aren't state entities. So I just disagree with the fact that you tell them they have to write something. We're the only state in America that has that law. If it was the end-all-be-all consumer protection law that it's been touted as for the last 17 years, then you would have seen a lot of other states adopt it.

Grace: It does have a lot of fans here, including outgoing Insurance Commissioner Jim Donelon and people who feel like they would have lost their insurance otherwise.

Temple: Well, right now we're being told that it's great consumer protection, but I'm also hearing everybody say they can't afford the quotes that these companies feel that they have to offer. The companies are handcuffed to the customers, and the customers feel that they have to stay with them. ... I will maintain that the best consumer protection that you and I can have is choice.

Grace: But what if companies aren't interested in providing that choice in a state that's so exposed to catastrophic events?

Temple: So on the homeowner side, you've got the big national insurance companies, and then you've got the independent agent market. Those independent agents right now only have four, maybe five companies that are quoting, and that's not like doors are wide open, send me all your business. They're very selective.

Prior to the 2020 hurricanes, there were about 25-26 companies writing that independent agent line of business. Some of those companies went insolvent, but most left the state. So that's what we've got to get back.

The other side of that argument is always, "Oh, well, you know, Louisiana is exposed to hurricanes, we're a bad place to write business." Well, guess what? Texas has a lot of exposure. Florida has a lot of exposure. So I don't buy into the fact that Louisiana is somehow a worse place because of the physical risk.

Risks to manage

Grace: But isn't this a broader trend? We're hearing about companies not wanting to do business in Western states because of wildfires.

Temple: I want to challenge that statement, OK? They are pulling out of California because California caps them at a 7% rate increase. Otherwise, you have to go get some type of special approval. And California does not allow insurance companies to do predictive modeling of the future; you can only look back. So what companies are saying is that it's not because of the wildfires, they're saying it's because they're not allowed to take the appropriate rate that they need to stay viable for potential future events.

Grace: So I guess the flip side of being able to charge the rates they need is very high prices for customers — perhaps unaffordable.

Temple: It certainly can be. There seems to be an underlying current of well, it's got to be fair: If I, as a consumer, want to go and build a home in the middle of a forest that's 26 miles away from the nearest fire hydrant, or if I want to build my home on the Gulf Coast 10 feet from the ocean, that I should have some type of affordable insurance.

I mean, we don't want it to be a government-funded, socialized type of product. What it needs to be is if you want to exercise your right to build where you are legally allowed to build, then you have to know upfront it may cost you more to build that house on the Gulf Coast than it does to build it in Alexandria, Louisiana.

Grace: When you're talking about the Gulf Coast, are you talking about down in the marsh, or in, say, Metairie?

Temple: Metairie, you can argue, is dang near the Gulf Coast. If you've ever flown into the New Orleans airport, you know that. Again, the concept is to create an environment where companies can come in and be treated at least not any worse than Texas or Florida treats their companies.

But then also, going through the legislative side of it, I think we can promote mitigation of risk, so if you do want to build a camp down in Grand Isle, you build to the best building codes, so that when that wind does blow, then the shingles are more likely to stay on your roof, which is more likely to keep your contents dry, which allows you to get back in your home quicker. It also reduces your overall risk exposure, so your claim should be less.

Grace: New construction is one thing, but what about existing housing stock?

Temple: And so that's where, as people replace or repair existing roofs, we need to make sure that we do everything we can to help promote fortified roofs, windows, doors — all the things that make your property more attractive, so that when these companies come back in, they're going to want to write Stephanie's house because she put a new fortified roof on, but Tim, who lives across the street, I didn't. I'm still probably going to get some insurance somewhere, but I shouldn't expect to get the same rate base that you do. And that's a hard message to tell people. Risk isn't equal.

Grace: Do state subsidies like those passed on a limited basis this year make sense to help people get there? Or is that something where if you make the investment, you get the reward as an individual?

Temple: I understand subsidies were needed to jump-start and get this in people's minds that, hey, there's something that I can do. But you know, there's also the state of Louisiana a tax credit, but that's not promoted.

I want to see what other states are doing. There's no reason to think that Louisiana has to come up with its own solutions all on its own. But if the program creates a more attractive risk, that means more insurance, then we've got to figure out how to make it work.

Next steps

Grace: So legislatively, what would be your first order of business?

Temple: The current prior approval process for changing policy rates. Looking at other states that have a lot of market participation and where rates are competitive and affordable, they tend to have either a file and use or use and file. It does not reduce the regulatory authority that the department has over an insurance company, it just changes the order. Prior approval is exactly what it says, an insurance company has to come to the department, they have to submit their paperwork and demonstrate why they need to change or want to change. And then the department has a timeline that they have to follow.

File and use, or use and file, are exactly what they say, you file it and use it or you use it and you file it, and then it's still up to the department, and there's a certain timeframe to make sure that what was filed or is being used meets all the requirements. It's a speed-to-market issue.

Grace: What else can we expect from a special session on insurance? Anything where customers would see relatively immediate results?

Temple: I don't want to say immediate, because insurance tends to be slow. But property writers don't come and write any substantial amount of new policies in hurricane season. They don't do it in Florida, they don't do it in Texas, and they certainly don't do it in Louisiana. So we're going to be focused on trying to help shift that competitive landscape as early as we can in the year, because I don't want to tell people well, we've got to wait until November 2024.

If we can do some things that the industry has indicated are red flags for them, it sends a signal to the marketplace out there. Florida had one hurricane, and they had three special sessions and did a whole lot of reform. Louisiana had four hurricanes, and we had one special session, and we didn't address any of the underlying issues. All we did was the $45 million incentive program.

I know people are saying I'm anti-consumer because of some of the things I want to suggest. But at the end of the day, this office is for the consumers, it is consumer protection. It's just my version of consumer protection is you having choice and ability to go to another carrier, if you don't like the pricing, or the policy, or the way you're treated. I believe that's the best consumer protection.

Room for improvement

Grace: Is there anything you would you favor that you think the insurance companies might not like?

Temple: Well, I haven't even started talking about the claims handling experience. I think that the industry could lean forward in a different way of handling catastrophe claims, in terms of getting money to people more quickly.

Grace: It's not like they never do wrong, they never screw consumers.

Temple: That certainly happens. And again, it's the department's job to be the gatekeeper. If bad actors come in here, then that's a problem and you need to figure out how they got in. And I think there are some things that we could promote on handling claims that I'm certainly sure they'd want to push back on a little bit, but we're going to be focused on trying to create a better climate. And so to the consumer, that's good.

Grace: My last question is kind of Economics 101. If more companies come in because they can make the money they want or need to make, does that mean prices stay high, or even go up, before competition forces them down?

Temple: Well, look, we're still in an inflationary period right now. So a home that would once cost $400,000 to rebuild is now costing $500,000. So an insurance company has to wait for that trend to shift.

I think what you'll see, though, is that when companies start coming back in, they have capital behind them, they have investors, they have shareholders, and they don't make money just by letting it sit in a bank account. They have to go and deploy it.

And if their product is a little too expensive, guess what? They're going to have to lower their price. And that's where that Economics 101 comes in. You've got to move your product, or else you lose money.