Following the Louisiana Legislature Special Session in which two bills were passed to fund the Insure Louisiana Incentive Program, Adams and Reese attorneys Bill Shea, Billy Wright, and Hogan Crosby, were interviewed in New Orleans CityBusiness about what homeowners and businesses now need to know.
The program’s primary goal seeks to increase the number of companies that write property insurance in Louisiana. Over two dozen companies that wrote homeowners policies in Louisiana have either gone insolvent or pulled out of the insurance market.
It is anticipated that Gov. John Bel Edwards will sign the bills, and then Louisiana Insurance Commissioner Jim Donelon will issue an invitation for proposals from insurers that want to take part in the program.
While the Insurance Commissioner is still developing the final regulations that govern the Incentive Fund, they appear largely fleshed out. As currently drafted, the Program would award grants of between $2 million and $10 million to each qualified insurance company, and these companies would provide 100% matching funds for the grant they receive.
Each grant recipient will be required to write net premiums of at least 2 times that total amount. So, for example, if a company receives a $2 million grant, it will be required to match the $2 million, and then it will be required to write at least $8 million in net premiums. Insurers will also be expected to write policies in “high-risk” parishes, known as “GO Zone” parishes. Prior to the Special Session, the Insurance Commissioner stated that Regulation 125, which will govern the Program, should be final on or before February 20, 2023.
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Below is the complete Q&A with Shea, Wright, and Crosby.
Why is there a current crisis in the property insurance market in Louisiana?
Wright: The stresses placed on the industry by hurricanes Zeta, Laura, Delta, and Ida in 2020 and 2021 led to an overwhelming number of residential property claims totaling approximately $18.4 billion paid out by property insurers. Many insurers providing homeowners insurance either went insolvent – or completely pulled out of Louisiana, seeing it as too risky to participate in the voluntary insurance market.
Shea: The average premium for home insurance in Louisiana is over $2,000 a year. That’s significantly higher than the national average. The lack of companies active in the Louisiana market reduces the competition in the market, thereby increasing the costs of premiums. This, combined with the threat posed by future hurricanes, poses a grim outlook for a state already battling to keep insurance affordable and available to its citizens. Many homeowners were forced to obtain property insurance through Louisiana’s Citizens, which is the state’s residual market for those unable to obtain insurance through the voluntary market. By law, the premiums on the Citizens policies – which are already pretty high to begin with – are set to increase soon.
Wright: These market forces, and the perceived riskiness of the Louisiana market, obviously led to an increase in premiums, including the voluntary market.
What is the specific goal of the Special Session?
Crosby: The special session began Jan. 30 and adjourned on Friday, February 3, passing two bills. The main purpose of the Session was to fund the Insure Louisiana Incentive Program, which was re-authorized in the 2022 Regular Session, but has not yet been funded. This Program is similar to the programs enacted after Hurricanes Katrina and Rita to increase the supply of property insurers writing insurance in Louisiana, especially after a series of catastrophic events that required substantial payouts by the industry.
Wright: As Hogan mentioned, the main goal of the Program is to increase the number of property insurers in Louisiana, with the dovetailing goal to decrease the number of insureds on Citizens-backed policies – especially before that Legislatively-mandated increase comes around. This, in turn, may hopefully decrease the rates that people will be forced to pay for property insurance. This is certainly not going to be a long term solution, since those involved all agree that this fund is largely a stop-gap measure. The Incentive Program should provide relief in the short term by increasing the supply of property insurance in Louisiana, and perhaps be the first step of many to alleviating the ongoing pressures on the Louisiana insurance market.
How would the Insure Louisiana Incentive Program work?
Shea: While the Insurance Commissioner is still developing the final regulations that govern the Incentive Fund, they appear largely fleshed out. As currently drafted, the Program would award grants of between $2 million and $10 million to each qualified insurance company, and these companies would provide 100% matching funds for the grant they receive. Each grant recipient will be required to write net premiums of at least 2 times that total amount. So, for example, if a company receives a $2 million grant, it will be required to match the $2 million, and then it will be required to write at least $8 million in net premiums. Insurers will also be expected to write policies in “high-risk” parishes, known as “GO Zone” parishes. Prior to the Special Session, the Insurance Commissioner stated that Regulation 125, which will govern the Program, should be final on or before February 20, 2023.
What other requirements would participating insurance companies have to follow?
Wright: Those insurers selected to receive a grant will be subject to enhanced solvency monitoring, such as increased capital and surplus requirements (which is $10,000,000.00, as the regulations are currently drafted), minimum financial strength ratings, monthly reporting requirements, reinsurance minimums, and per-parish premium limits. One of the Legislators’ main concerns was whether companies that formerly wrote in Louisiana, but filed for bankruptcy or became insolvent, would be able to participate. One of the bills from the Special Session directly addresses that concern by preventing these companies from participating in the Program.
When will the funds be distributed?
Wright: While the Insurance Commissioner has stated that his office could distribute the funds to qualified companies as early as March 2023, the draft regulations provide for at least 30 days of a public invitation period, and then the Insurance Commissioner must consider the applications. For accepted insurers, unless expedited funding is requested and approved, approved grants will “be funded on the next regular quarterly period” after acceptance. The 2023 hurricane season is already fast approaching, so the Insurance Commissioner likely intends to issue the public invitations to participate and decide on which insurance companies qualify before the upcoming hurricane season.
What about long-term solutions for the insurance industry?
Crosby: There will be long-term solutions discussed in the April session, but for now this special session will give Louisiana homeowners more options for affordable insurance. For instance, the Insurance Commissioner and many advocacy groups, would like to see a program that offers grants to homeowners to encourage replacement or the retrofitting of their roofs to higher standards. Doing this may help lower insurance rates because companies will be more in favor of writing policies to homeowners given more protective roofs to withstand future hurricanes.
What does this mean for companies operating in the Louisiana insurance industry?
Wright: The special session reflects both concerns and opportunities for those doing business in the state. Companies now face both legislative and market uncertainty. This naturally poses difficulties to both insurers and insureds seeking stability in their plans and operations moving forward. The Program is an incentive for companies to participate in Louisiana’s challenging property insurance market. And, while it does not appear to be the main goal of the Program, it may facilitate greater access to reinsurance - or possibly better terms on the reinsurance market.
Shea: This gives companies the opportunity to stabilize their position for at least the upcoming hurricane season, and gain fiscal relief when it otherwise might not be available. By stabilizing now, companies can put themselves them to be in a much more competitive position when a longer-term plan for addressing the issues of the insurance market is worked out by the Legislature during the 2023 Regular Session.
Is this just a Louisiana problem, or regional?
Crosby: The impacts on other state insurance markets by other recent hurricanes, such as Hurricane Ian in Florida, cascade across markets of states all along the Gulf Coast. This has caused significant solvency issues for insurers operating in the region because they cannot rely on stability in other markets to cover the immense short-term pressure caused by the exceptionally high volume of claims in Louisiana and Florida.
Why is this special session important for homeowners to monitor and pay attention?
Shea: While not limited to the homeowners' insurance market, Louisiana homeowners are facing the brunt of this crisis. Already dealing with the physical toil of rebuilding their homes and lives, thousands of families now face the difficult decision of either having to pay much higher premiums or having no coverage at all. This Program seeks to alleviate those pressures, and, once the Program is in full swing, homeowners, especially those on Citizens plans, should reach out to their agents and brokers to see if more insurance options are available.
What do businesses need to be aware of and pay attention to?
Wright: The results of this special session is extremely important to the state’s economy and will have an effect on industries across the board. Employees need to be able to afford their homes in Louisiana, and if not, we risk them leaving. This also is not a crisis limited to homeowners’ policies. Businesses certainly have seen their property policies increase, as well, and they should reach out to their agents and brokers to see if cheaper options are available. Further, as mentioned multiple times, this Program should not be considered a long-term solution, so business owners should encourage their Legislators to solve this crisis and therefore provide a branch to the direction of our economy.
Bill Shea advises clients on a host of insurance regulatory matters throughout the Southeast, as well as both commercial litigation and insurance litigation throughout Louisiana. He has successfully obtained Certificates of Authority for insurers seeking to do business in Louisiana, as well as other states. He also has assisted insurance companies with other matters involving licensing and compliance. He handles disputes between regulated entities and the Louisiana Department of Insurance. Shea earned his J.D. from Southern University Law Center and his B.A. from Southeastern Louisiana University.
Billy Wright focuses on general insurance defense, professional liability, management liability, and employment. He devotes the remainder of his practice to a wide array of litigation, including contract disputes, business torts, and disputes pertaining to successions, wills, and trusts. Wright has been recognized among Louisiana’s Rising Stars and Best Lawyers “Ones to Watch”. Wright earned his J.D. from Louisiana State University Paul M. Hebert Law Center and received his B.S. from LSU.
Hogan Crosby assists both the Adams and Reese Litigation and Labor and Employment practice area groups, along with practicing in general insurance defense. Crosby received his J.D. from Tulane University School of Law, and he is a graduate of Rhodes College, with a B.A. in Commerce and Business, a concentration in Finance, and a minor in History. Crosby formerly worked in the financial services industry, obtaining a FINRA Series 7 license and Colorado life accident and health insurance licenses.