Once dominated by behemoths, Louisiana insurance increasingly provided by unproven carriers
Nov. 27—Once upon a time, most Louisianans insured their homes with a traditional behemoth, a giant of the industry, like
No more. Today, a sizable share of
In some cases, these smaller firms never hire employees or even set foot in the state.
Instead, they outsource their operations to third-party administrators, known as managing general agents. While not new, the practice has grown increasingly common in
Pre-Katrina, the 10 largest
Those numbers reflect how home insurance often works now in
In the years without major storms, investors may draw dividends from the millions in premiums written by their firms. But when catastrophic hurricanes arrive, these companies are far less likely to have the cash or reinsurance needed to pay the crush of claims that follow.
Their liability is generally limited. Once a company is declared insolvent, its remaining assets are liquidated, and whatever can't be paid from those proceeds becomes the responsibility of the
"If there is a catastrophe, (they say) 'We'll have to fold up shop,'" said
The back-to-back years of Category 4 catastrophes resulted in more than 800,000 overall claims — a huge burden on small companies primarily selling policies in
But state Insurance Commissioner
"I do believe the failed companies failed because the owners tried to go cheap on their reinsurance buys, maximize their profits and rolled snake eyes when Ida came through," Donelon said.
Together, the failed companies held more than 184,000 policies, at least 13% of
'Fractional' companies
It's difficult to say exactly how many
The
As of last year, companies that used managing general agents had at least 20% of the market in
In 2005, Grace estimates, the share of the market represented by such companies was less than 1%.
The shift isn't necessarily a cause for concern, said
"We're going to get some rich entrepreneur from
He echoed comments from other observers who noted that all industries — not just insurance — are flush with investors who play passive roles in the companies they own. When it comes to home insurance, Albright said, "If they do it properly, that's a good thing, not a bad thing."
Still, Albright thinks
"If we give them more flexibility and they can see an opportunity to make money over the long term, they may want to come back," he said.
"The primary thing is price regulation. Most people's gut reaction is, 'We can't just let insurance companies charge whatever they want. But if you can't write the price you want, what's your alternative? Your alternative is to not write policies in
The 'Florida Model'
The result today is a
"It's referred to as the 'Florida Model,'" Donelon said.
"We're very dependent on those small,
Five of the 11 companies writing business in
With no
"There's a lot more expedience," Leverty said. "If I were a regulator, I would want them to have some physical assets and skin in the game, because hopefully that creates some more permanency."
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