Louisiana legislature holding 'extraordinary' session on property insurance

Louisiana Governor John Bel Edwards is calling for the state legislature to hold an extraordinary session with the goal of securing $45 million for the Insure Louisiana Incentive Fund, which aims to draw insurance companies into Louisiana’s beleaguered property insurance market.

The program will offer matching grants to incentivize new and existing companies to write personal and commercial policies in coastal areas, according to the Louisiana Department of Insurance (LDI, which noted reducing the policy count of Louisiana Citizens Property Insurance Corp. is also part of the program’s goals. So far, seven companies have reached out to LDI about participating.

The program, which was recreated but not funded during 2022’s regular legislative session, played a critical role in helping the state’s property insurance market recover following hurricanes Katrina and Rita, according to a letter addressed to state lawmakers from Louisiana Insurance Commissioner Jim Donelon.

In the letter, Donelon explained this is an urgent matter as the state must work to reduce Citizen’s policy count, which will in turn reduce costs for Citizen’s reinsurance program ahead of June 1 renewals.

“If a special session could be called and concluded by Feb. 15, the LDI could distribute funds to approved companies in early March,” Donelon wrote. “This would give participating insurers a three-month period to access reinsurance for their increased book of policies and start writing new business compared to funding it in the regular session.”

The special session will start on Jan. 30 and must be wrapped up by close of business on Feb. 5, 2023, according to the governor’s proclamation.

“While Commissioner Donelon says we must do this now, this is just a first step in addressing Louisiana’s ongoing insurance issues after the devastating hurricane seasons of 2020 and 2021, a crisis worsened by hurricanes and wildfires in other states in 2022,” Edwards said in a statement. “We will continue to work on this issue during the regular session beginning in April.”

Another southeast property market crisis

According to Donelon, the state is experiencing its most difficult home insurance market since hurricanes Katrina and Rita devastated Louisiana in 2005.

During the past two years, 11 insurers in the state have faced insolvencies. According to Mark Friedlander, director of corporate communications for the Insurance Information Institute, the primary cause of these failures has been undercapitalized insurers that didn’t secure enough reinsurance to handle the influx of hurricane claims seen in 2020 and 2021.

“The mass volume of hurricane losses also drove a dozen insurers to voluntarily withdraw from the market and more than 50 carriers to stop writing new business in hurricane-prone parishes,” Friedlander said. “These market changes have driven Louisiana Citizens Property Insurance Corp., the state-run insurer of last resort, to an unhealthy level of policy growth.”

While Louisiana’s struggling property insurance sector might draw a comparison to nearby Florida’s home insurance woes, the challenged markets don’t have the same primary drivers. Friedlander explained Florida’s troubles have largely been man-made, as litigation and assignment of benefits fraud have exacerbated problems in the state.

“Several Florida residential insurers have voluntarily withdrawn from the market and more than a dozen companies stopped writing new business because of the state’s litigious environment,” he explained, adding that insurance companies in Louisiana haven’t seen the same level of experienced excessive litigation.

Another major difference is the size of each state’s insurer of last resort. While both bear similar names, Louisiana’s Citizens has around 128,000 policyholders, up from 35,000 just two years ago. Florida’s Citizens Property Insurance Corporation has nearly 1.2 million policies and is expected to see its policy count reach a record 1.7 million by the end of 2023, according to Friedlander, who pointed out that it is Florida’s largest home insurance company by a wide margin base on market share.

However, Friedlander expects the reforms in both states to stabilize their respective markets long term.

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