Regulators face insurance storms on multiple fronts

Homeowners' insurance has turned into a minefield for Louisiana officials, who are fielding a surge of complaints from policyholders over storm damage claims and rising premiums – all while trying to limit the number of insurers leaving the market or folding.

All of these problems were discussed Thursday during a Legislative Auditor Advisory Council hearing at the Capitol, during which lawmakers pressed the Louisiana Department of Insurance for more information. Legislative Auditor Mike Waguespack and his staff reviewed and updated reports on complaints made to the insurance department, its actions in response and the financial condition of the state's residential property insurance market.

Not surprisingly, property insurance complaints filed with the state insurance department soared after major hurricanes in 2020 and 2021, according to audit data. After recording about 450 from 2017 through 2019, policyholders filed 1,350 complaints in 2020 and a whopping 5,200 last year.

Nearly all of the complaints, 98%, involved damage claims, and the insurance department resolved nearly two-thirds of those in favor of the policyholder, auditors said.

With the majority of resolutions benefiting consumers, advisory council chairman Sen. Jay Luneau, D-Alexandria, questioned whether the insurance department is doing enough to compel insurers to do right by policyholders from the onset.

The most frequent complaints involved communication problems with claims adjusters, with homeowners often unable to track them down after an initial evaluation. The audit determined the vast majority of adjusters working in Louisiana, especially after a hurricane, are from out of state. Some states require out-of-state adjusters to be licensed, but Louisiana recognizes licensure from other states after a disaster in order to get more adjusters out in the field.

Luneau shared the experience of Grant Parish Sheriff Steven McCain, who has said he worked with 23 different adjusters from 21 different states on his claim.

Fines against insurers

under question

Lawmakers and insurance department officials struggled to get on the same page with the amount of fines collected from insurers for substantiated complaints. Fines start at $50 and can reach up to $350,000.

Deputy insurance commissioner Nina Hunter said fines are levied only after the department makes multiple attempts to compel an insurance company to rectify claim issues.

"That makes this number even more staggering," Luneau said, "when you've worked with them ... and still 64% [of complaints] are found to have merit and should have been addressed by the insurance companies."

According to the legislative auditor, the department proposed fines totaling $764,000 in 2021, but just nine fines were collected totaling $7,750.

Lawmakers questioned the low collection total in light of thousands of complaints after a string of major hurricanes.

More fines will soon be finalized, said David Caldwell, the insurance department's executive counsel. He did not provide a total amount for what the state expects to collect, adding that insurance companies can appeal the fines to the department.

Luneau reminded others on the council the amounts being discussed do not include what insurance companies are forced to pay when claimants decide to go to court to obtain damages instead of filing a complaint with the insurance department.

Citizens more than

triples policy load

The insolvency of 11 insurance companies since July 2021 has required the state-created insurer of last resort, Louisiana Citizens Property Insurance Corp., to absorb those property owners and more than triple the number of policies it carries. At the start of 2021, Citizens held about 35,000 policies for $6.7 billion in property value. The policy number now stands at 112,000 for $33.3 billion worth of property, according to the audit report.

Auditors discussed the possibility that another catastrophe in the near future could drain Citizens' resources. That scenario last occurred after Hurricane Katrina in 2005, after which Citizens had to assess all homeowners' policy holders in Louisiana to replenish its funds. Those payments will continue through 2026.

Insure Louisiana, an incentive plan the legislature created after Katrina, allowed the state to offer grants from $2 million to $10 million to attract new property insurance providers. Of the five new companies that started writing policies, three are still doing business in the state, and one went bankrupt. The other was acquired by Allstate, which no longer writes new property insurance policies in storm-prone areas.

Waguespack, the legislative auditor, said the legislature has the option to revive Insure Louisiana and continue to provide incentives. It could also put the money into a catastrophe fund to help policy writers obtain reinsurance, he said.

Reinsurance, the secondary coverage insurance companies obtain to cover their risk, is increasingly being priced out of reach. Of the 11 insurance companies writing Louisiana policies that went belly up, auditors said six of them had inadequate reinsurance coverage.

Florida's version of Citizens Property Insurance Corp. went into the 2022 hurricane season with only one-third of its policies reinsured because market prices were unaffordable. It already planned to increase premiums on policyholders before Hurricane Ian struck, and Florida residents expect more hikes to follow.

Another option for Louisiana lawmakers would be to provide money directly to homeowners to fortify their roofs, Waguespack said. The most severe damage comes when houses lose their roofs, and investing in ways to keep them on could help lower insurance costs, he said.

To avoid insurance companies folding in the future, legislators have already raised the bar for companies that want to do business in Louisiana. A law approved earlier this year requires property coverage providers to have $10 million in capital and surplus on hand to write new policies.