Donelon: Claims of Louisiana insurance crisis true
Published 4:36 am Wednesday 23 November 2022
Since the double whammy of Hurricanes Laura and Delta in 2020, 11 home insurance companies operating in Louisiana have been declared financially insolvent and 12 are unable to conduct business in the state.
Together, the 11 insolvent insurers held 184,000 policies.
To meet the outstanding claims of the failing insurers, the state-recognized Louisiana Insurance Guaranty Association borrowed $600 million in state-approved forms. These debts are paid by the other insurance companies in Louisiana through a set fee.
According to Louisiana’s Public Affairs Research Council, insurers “can recover the fee either by increasing the policyholder rate or by claiming a premium tax credit from the state.” Most companies take advantage of the tax credit.
State Insurance Commissioner Jim Donelon confirmed during a recent webinar hosted by PAR that claims of an insurance crisis are not an exaggeration. He was joined by State Senator Jeremy Stine, a member of the state Insurance Commission, and Kevin Cunningham, a partner in the Southern Strategy group and the Insurance Commission lobbyist, to discuss the insurance situation in Louisiana.
“Our state is going through a crisis on par with, perhaps in some ways greater than, Katrina and Rita in 2005,” Donelon said. “The crisis must not be overstated. It’s on our doorstep, we’re in it, and hundreds of thousands of our citizens and property owners across the state are suffering the aftermath of the last two hurricane seasons.”
After the last two hurricane seasons, many Louisiana residents have had difficulty acquiring and maintaining insurance policies. Many have been forced to sell or abandon their properties, while some are simply unable to allocate funds to repair their homes.
Donelon said about a million claims were filed and $16 billion in flood damage payments distributed after Hurricanes Rita and Katrina made landfall.
Hurricanes Laura, Delta, Zeta and Ida accumulated more than 613,000 damage. In home ownership claims, Laura netted $4,023,288,223; Delta at $506,696,456; Zeta worth $279,257,966; and Ida at $6,562,902,773.
Donelon said the best measure of the current crisis is the residual market – “the government-sponsored … market of last resort for policyholders who can’t buy insurance in the private sector.”
Currently, 4-5 percent of homeowner and commercial real estate in the insurance market is on the books of the Louisiana Citizens Property Insurance Corporation, totaling approximately 128,000 policies. Prior to Laura’s landing, only 0.5 percent of policies were held by Louisiana citizens, or 35,000 policies.
Louisiana Citizens is a nonprofit organization that provides insurance to both residential and commercial property owners as a last resort when they are unable to obtain insurance through the private insurance market. The organization is mandated by the state to be more expensive than private property insurance companies.
On January 1, 2023, Louisiana Citizens’ homeowners insurance will increase by 62.9 percent for the FAIR Plan and 65.6 percent for the Coastal Plan policies.
Just one in 12 policyholders will be affected in January, Donelon said. “It won’t hit existing policyholders until they reach their one-year extension,” he explained. New policyholders won’t see the increase until after their one-year anniversary with Louisiana Citizens.
Stine agreed that these numbers are signs of a crisis.
“If Citizens’ population has tripled in less than two years, that’s a crisis,” Stine said. “If their commitments have gone from $6 billion to $33 billion, that’s a crisis.”
Cunningham added that these problems are exemplified by problems with insurance costs and accessibility.
“You measure things by availability and affordability,” he said. “We believe it’s a moment where we believe the market will adjust.”
Despite this prediction, it is crucial that efforts are made to strengthen the private market.
“We should consider every available option,” Stine said. “As for me and the legislature, we are willing to listen and learn from other states. That being said, we’re currently operating within the confines of our current structure… in which case, Citizens people will have to move.
Donelon said the first step is depopulation, as rates will continue to rise annually unless corrective action is taken. The state is now trying to depopulate the citizens of Louisiana.
The acceptance date for Round 17 of the Louisiana Citizens’ Depopulation Process is April 1, 2023. The process involves the retransfer of select policies to the private sector market to authorized insureds. To be approved, insurers must be an Approved Carrier, hold a Certificate of Approval from LDI and be rated at least B+ by AM Best.
Donelon said refunds will be issued to policyholders who have prepaid if they are depopulated before 12 months have elapsed.
“If someone gets the opportunity, as some companies are doing business today, to switch from Citizens back to a private insurer, they can get their unearned premium for the 1 year they prepay their policy from Citizens,” said Donelon.
To attract more insurers into Louisiana’s private market, the state reinstated the Insure Louisiana Incentive Program, which successfully recovered the market after Hurricanes Katrina and Rita. Through this program, interested insurers can submit grant applications to write business in Louisiana. Accepted applicants will receive a minimum of $2 million and a maximum of $10 million in funding.
Stine said the program is “a step in the right direction,” and confirmed that a meeting of the joint budget committee will be held in December to see if the $20 million in funding for the grant program will go ahead.
He also recommended reforming Louisiana’s tariff structure. He said the state’s current retaliatory taxes discourage new businesses. “We need to reform our tax structure so we can get more businesses here.”
Bankruptcy underwriters in Louisiana
Access Home Insurance Co.
Americas Insurance Co.
Fednat insurance company
Gulfstream Property & Casualty Insurance Co.
Gulfstream Select Insurance Co.
Lighthouse Property Insurance Co.
Lighthouse Excalibur Insurance Co.
Maison insurance company
Southern Fidelity Insurance Co.
State National Fire Insurance Co.
Weston Property & Casualty Co.
Companies that can no longer do business in the country
Republic Fire and Casualty Insurance Co.
United Fire & Indemnity Co.
Aegis Security Insurance Co.
American Summit Insurance Co.
Maison insurance company
American Reliable Insurance Co.
Unitrin Direct Property & Casualty Co.
Union National Fire Insurance Co.
AIG Property Casualty Co.
Lexington Insurance Co.
Geovera Specialty Insurance Co.
Banker’s Specialty Insurance Co.