Louisiana Prioritizes Insurance Reform

In recent years, Louisiana leaders have worked to educate businesses and homeowners about the importance of building more resiliently, and now Louisiana is taking strides to upgrade its overall insurance structure.

With 12 markets having gone insolvent in the state in the past few years, my office and the legislature—along with partners in the industry—have begun the process of upgrading our state laws and regulations to systematically deal with long-term problems that have made Louisiana less than attractive to carriers.

Right now, if you want to move your business to Louisiana, your commercial trucking will go through the roof. Your access to property insurance is almost nonexistent. This is not acceptable. We need an insurance renaissance, and that is what we are currently laying the groundwork for. Availability will lead to affordability, so we are focusing first on making the state attractive to insurers and reinsurers. We also want to incentivize the ones that are here to remain. Part of that is making our regulations and laws as friendly as possible.

We are starting with bills to reduce unnecessary lawsuits and excessive litigation. For example, our claims statutes have created ambiguity and instability in the claims process, especially after hurricanes, resulting in way too many bad-faith cases heading to court. SB 323, signed in April, is designed to clean up Louisiana’s claims statutes so that we have a fair, transparent process where everyone knows the rules and policyholders get paid as quickly as possible.

HB 611 is another law that should help attract new carriers. I recently travelled to London and Bermuda for discussions with insurers and reinsurers about what could be done to attract them to Louisiana, and I heard the same thing I hear on this side of the Atlantic: insurers need the flexibility to manage their risk. HB 611, which Gov. Jeff Landry signed in May, will eliminate the so-called “three-year rule” that makes it nearly impossible for carriers to non-renew homeowners policies that have been in effect for three years or more. The new law will apply to policies that have not been in place for at least three years at the time the law goes into effect, and it will allow for the non-renewal of up to 5% of carriers’ three-year-old or older policies each year.

If we build an attractive marketplace in Louisiana, we won’t need to panic about non-renewals, because there will be other carriers to pick up those policies.

We are also shepherding SB 250 through the legislature. It would prohibit plaintiffs from naming a defendant’s insurer as a party to a lawsuit if the insurer is not accused of wrongdoing in the complaint or the defendant isn’t insolvent or absent. That should help keep carriers out of court and eliminate one more barrier to insurer participation in the state.

As far as follow-through on old initiatives, we have achieved bipartisan consensus on U.S. Army Corps of Engineers projects and other protection efforts, and many are completed or underway. We have a $50 billion plan to restore the coast, which will help reduce losses. These levees and other mitigation projects make a difference to reinsurers, and they are one tool in our kit to make Louisiana a more palatable market for carriers.

I want to also recognize our leaders at the parish level who are doing internal financing of levees, and other mitigation, through local taxes, etc. The parishes are really our front line and play a major role in making the market attractive to insurers. I am grateful for their efforts.

Incentives to Policyholders

We are also demonstrating our commitment to long-term resiliency projects by seeking renewed support for the Fortify Homes Program, which helps homeowners replace their current roof with one that is specially designed to withstand high wind and hail. Fortify Homes was funded with $30 million last year and has shown excellent results. More than 500 roofs were replaced under this subsidy initiative in just the few months after it took effect. Another 2,500 or so applicants are going through the approval process and have either been cleared in the past weeks or should be cleared for participation shortly. A grant of up to $10,000 goes to the certified roofer who successfully completes the job.

We just got a bill, HB 120, passed that did away with Fortify Homes’ sunset provision, meaning the program will be permanent, and I expect it will get funded for another $15 million this year. That said, I’m also working on identifying and implementing a new financial source for this program so we don’t have to keep asking the legislature for the money. This program, along with improving our building codes, will help Louisiana compete with other states for limited insurance capacity.

Alternative Options

I have been asked about the possibility of a state-backed wind-only fund, like they have in Texas. We do not have such a fund. One of the challenges is we’re a small market—just a 4.4 million person market—and a large portion live near the coast. I think there will be a task force coming out of the current legislative session to look at the feasibility of a cat fund, so that’s just one more option to consider.

There may also be opportunities for parametric insurance to grow, especially for hurricanes and floods, and I’m open to that. Parametric can get immediate money to policyholders for repair and recovery. But policies are very targeted and can be expensive, so the consumer market for them is restricted. As far as public use of parametric insurance for organizations like school districts, it has been done in the state, but it’s not something the Department of Insurance has delved into.

Looking Forward

I do believe our best days are ahead of us and a key factor is the insurance component. I’m new to the commissioner’s job, but I’m a longtime observer of the industry. The power of consultation and cooperation cannot be overstated.

Our legislative package was crafted by a lot of knowledgeable people over the past six months—attorneys, policyholders, legislators, insurers—we got input from as many as we could. This has been a collaborative, all-hands-on-deck process.

We want to make sure legislators, local leaders, and all stakeholders know we need meaningful reform, what the issues are, and where we are an outlier compared to other states.

We’d also like to educate policyholders about being fully insured. I just recorded my first public service announcements last month about hurricane season, what insurance you need, etc. But there’s only so much government can do. That’s why we need insurance producers, carriers, developers, design/build contractors, architects, fleet owners—everyone—on board with hardening our state’s property, improving our flood barriers, and securing the right coverage. These are the ways we avoid the terrible human toll that catastrophic weather events can visit upon us. I believe together we can and will do it.