Louisiana Insurance Commissioner Jim Donelon calls the next phase of plans to stabilize the state’s homeowners insurance market “the most ambitious reform we have attempted in my 17 years as insurance commissioner.”
Notably, the property insurance reform package gives lawmakers a second stab at the Louisiana Fortify Homes Program, which fortifies roofs against strong hurricanes and tropical storm winds. Lawmakers declined to fund the program last year.
Donelon, who is not running for re-election this time, is taking the legislature to court to find the money. The program provides grants of up to $10,000 for homeowners to retrofit their roofs to standards set by the Insurance Institute for Business and Home Security.
The original budget request is $20 million, said state assemblyman Mike Huval, chairman of the House Insurance Committee.
“One thing we cannot pass legislation against in our state is to prevent hurricanes from coming. They are coming,” said Huval. “I believe this program will help many people withstand storm damage in the near future while also reducing the long-term cost of homeowner’s insurance in our state.”
Louisiana is being gripped by an insurance crisis very similar to the crisis that followed Hurricane Katrina and Rita in 2005: insurers are exiting the state rather than risk huge losses associated with major storm and hurricane events.
So far, 11 insurers have gone bust and another dozen or more have stopped selling policies, leaving desperate homeowners to rely on state insurer of last resort, Louisiana Citizens Property Insurance Corp. As an insurer of last resort, Citizens is required by law to charge 10% more than the highest private insurer in each municipality.
Donelon successfully steered the first phase of its plan to use financial incentives to lure insurers back to Louisiana through the legislative session earlier this year.
The incentive program works as follows: insurers who agree to do business in the state are eligible for grants ranging from $2 million to $10 million. Approved insurers must then top up this amount and write a $2 premium for every dollar accepted. The ultimate goal is to transition policyholders from citizens back to private insurers, Donelon said:
Donelon provided an update on the status of the incentive program on Tuesday. Eight insurers were approved to receive $42 million, Donelon said, resulting in nearly $170 million in new premiums written.
“I expect that by the end of the first year of the program, 40,000 policies will come out of Citizens and an additional 50,000 new policies will be written during that time,” the commissioner added.
Don’t be like Florida
The remainder of the property insurance reform package focuses on regulatory reform. Donelon stressed the need to learn from Florida’s litigation culture and how it was ravaging the insurance market. About 9% of title claims by homeowners nationwide are filed in Florida, but 79% of title claim-related lawsuits are filed there.
“Most of the insurance companies that have failed in the last two years were either based in Florida or wrote the majority of their policies in Florida,” Donelon said. “The state’s poor regulatory environment for insurance has pushed insurance companies in Louisiana and other coastal states into safe haven.”
The Florida legislature passed legislation last month that makes it much harder to sue insurance companies.
“Because of these recent changes in Florida, my guess is that these bad actors will be targeting homeowners in Louisiana next,” Donelon said. “In fact, we’re already seeing it.”
Proposed legislative reforms include:
- Prevent unscrupulous companies from filing lawsuits on behalf of homeowners. This behavior led to much of the Florida insurance crisis. Huval’s bill would allow insurers to require an affidavit of loss and establish a two-year statute of limitations on policyholders seeking penalties and attorneys’ fees.
- Another proposal would allow homeowners to ask a public surveyor for a second opinion on damage.
- Legislation requiring insurance companies to reduce premiums for houses that have their roofs retrofitted to meet fortified home or fortified commercial standards.
InsuranceNewsNet Editor-in-Chief John Hilton has had more than 20 years of daily coverage of business and other issues. John can be reached at [email protected]. Follow him on Twitter @INNJohnH.
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