Another sign of Louisiana's insurance troubles comes from its high-risk pool, the market of last resort, which has become the “market of first resort” because the state no longer has enough companies writing.

“We are the fourth-largest writer of homeowners insurance in the state right now. We have gone from about 14,000 policies in the high-risk pool in 1992 to over 100,000,” he noted. “We have agents who have been in business for 60 years who, for the first time in the entire history of their agencies, do not have a homeowners company to write for. The only company they write for is the high-risk pool.”

An extensive insurer poll also offered state regulators further insights into Louisiana's crisis. Last year, the insurance department sent out a survey to every company that has written homeowners insurance in Louisiana during the past decade and asked them to anonymously identify major problems with writing insurance in the state. And what the department found has set the course of reform since then.

“The survey asked companies why they had stopped writing, and what it would take for them to start writing again,” Mr. Wooley said. “The number one response was to change our rating system.”

To remedy this problem, a bill was passed last month to implement a “flex-band” system, similar to what South Carolina passed in the late 1990s, and Louisiana Gov. Mike Foster has indicated that he will let it become law beginning next year, Mr. Wooley noted.

This system, he explained, will allow insurers to raise or lower rates by up to 10 percent in a year without going through the Louisiana Insurance Rating Commission for approval, as they are currently required to do.

Under this new law, insurers would simply file new rates with the insurance department 30 days before they take effect, and carriers would just notify their insureds of the change within that same 30-day period. Mr. Wooley added that the rating commission's actuarial staff would still review the adjustments to make sure that they are reasonable, and rate changes of more than 10 percent would still require approval from the insurance department and the rating commission.

“Basically, what we hope the flex-band bill will do is that it will encourage companies to come to Louisiana, and that competitive environment should help stabilize our market and hopefully bring lower prices to our consumers,” Mr. Wooley suggested.

Additionally, Mr. Wooley observed that local business lobbying groups such as the Coalition to Insure Louisiana are now playing a significant role in regulatory reform efforts. “I think Coalition to Insure Louisiana has been effective. It brought together business people, realtors and others who have been hurt by the homeowners crisis to explain to the legislature why we need reforms,” Mr. Wooley said.

And while the insurance department and the coalition have different agendas, he acknowledged that such business alliances can be useful in getting lawmakers' attention. “When business groups come together and say, 'Look, this is hurting us,' I think that helps in the educational process for lawmakers,” he said.

Greg LaCost, counsel at the Des Plaines, Ill.-based National Association of Independent Insurers, one of the founding members of the Coalition to Insure Louisiana, noted that this type of alliance can also work well in other states to create a more insurer-friendly environment.

“We are also a member of the New Jersey Coalition, which has been successful. There is another one in Texas that we are part of, and that has also done well,” Mr. LaCost noted. “The Louisiana coalition's reform efforts are going well. The biggest bill out there, of course, is the flex-band bill. It is a good step–it's a step that will bring competition back to Louisiana.”

Mr. LaCost explained: “In 1997, South Carolina passed a flex band of 7 percent. At that point, South Carolina's market for auto was horrible. They were down to 20 carriers that were actively writing insurance in the state,” he said. But after the flex band went into effect in 1999, more than 100 new carriers have moved into that market and are now actively writing insurance, according to NAII.

Auto rates have gone down in South Carolina since then as well, Mr. LaCost observed, adding that this also helped homeowners insurance because companies started doing both homeowners and auto when they saw how good a market South Carolina was becoming. “And the residual market, the involuntary market that skyrocketed when the market was not working well, has plummeted in South Carolina,” he said.

Mr. LaCost predicted that the flex-band law would have a similar impact on Louisiana and resolve a good portion of insurance problems the state is facing.

Like Mr. Wooley, Mr. LaCost noted that even with flex-rating rules in place, the rating commission would still be there for any rate changes over 10 percent. “Let's say you have a big hurricane that goes through Louisiana and you have to get an increase of, say, 12 percent. You would still have to go in front of the Louisiana Insurance Rating Commission,” Mr. LaCost said.

He charged that the rating commission has made it very difficult for companies to do business in Louisiana, and therefore, “at some point, it should be phased out. Louisiana is one of the last states to have an insurance rating commission.”

But Mr. Wooley is taking a more cautious approach, warning that dissolving the commission soon may be premature. “I want to see what this flex-band system does–I want to have that opportunity. Plus, I don't want to make too drastic a change with our fragile market,” he said.

Another area of disagreement between the insurance department and the Coalition to Insure Louisiana involves tort reform and lowering the state's monetary threshold for obtaining a jury trial.

Mr. LaCost noted that, in Louisiana, a jury would be allowed only if each individual claim in pleadings by plaintiffs' lawyers is more than $50,000. So for businesses that get sued by individuals for up to an amount of $50,000, their cases would have have to go in front of a judge instead of a jury, Mr. LaCost said. And since the $50,000 threshold refers to each individual claim within a case, defendants facing a judge could still get socked with big damages in the aggregate amount if there are multiple plaintiffs in a suit. Furthermore, judges can also award more than $50,000 per plaintiff in these cases if they feel such decisions are justified.

He noted that many insurers now feel they would have a better chance of prevailing if more of their cases were tried in front of a jury instead of a judge. One reason that some judges may be favoring plaintiffs, he speculated, is that since all Louisiana judges are elected and trial lawyers are important campaign contributors, some judges end up getting influenced in their decisions.

“The feeling is that in our state, where judges are elected, there is a lot of political pressure on judges to be plaintiffs-oriented,” added Jeff Albright, executive vice president at Independent Insurance Agents & Brokers of Louisiana and spokesperson for the Coalition to Insure Louisiana. “We believe some judges do favor plaintiffs, and we feel juries will be more conservative.”

Mr. LaCost said there is currently a bill that the Louisiana coalition is pushing to lower the threshold for jury trials. “We are looking to reduce the $50,000 threshold in Louisiana, which is the highest in the country,” he said. “The next highest in the country is only $15,000, in New Jersey. And 35 states have no threshold whatsoever. So that's a big concern for us in Louisiana–we would like to see that changed.”

But the insurance department is taking a different view on this subject. Mr. Wooley suggested that, while there has been a lot of tort reform in Louisiana in the past few years, “I haven't seen any real impact on rates to this point.”

Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.