House advances two bills to address Louisiana insurance crisis

A Louisiana House committee advanced two bills Tuesday that lawmakers and insurance officials said will provide at least a short-term solution to the state’s property insurance crisis. The approval came after hours of lawmakers’ questions for Insurance Commissioner Jim Donelon, who said property owners in hurricane-prone parts of the state would likely lose their homes if lawmakers did not take action.

On the second day of the Louisiana Legislature’s special session, the House Committee on Appropriations unanimously approved House Bill 1 and House Bill 2, advancing both to the House floor where the rest of the chamber will consider them on Wednesday. Both bills will still need Senate approval before 6 p.m. Sunday, when the session expires.

House Bill 1, sponsored by Rep. Jerome “Zee” Zeringue, R-Houma, would transfer $45 million to the Insure Louisiana Incentive Program. The program would offer grants to certain insurance companies that underwrite new homeowner policies in the state, similar to an incentive program established after Hurricane Katrina.

One notable difference from the post-Katrina program is that Zeringue’s bill would require the grants be awarded only to insurance companies with high financial strength ratings as a way to minimize the chance of new companies setting up shop and taking the incentives without the financial strength to withstand the claims arising out of the next disaster. 

The bill would also require the insurance commissioner to exercise tighter regulatory evaluations and ongoing monitoring of companies that receive the incentives. The bolstered oversight would include catastrophe model stress tests against the companies’ reinsurance programs, their coverage to cover the risks for the policies they write.

Donelon asked Gov. John Bel Edwards to call the special session after nearly two dozen insurance companies have left Louisiana’s market over the past two years, either by going broke or no longer writing policies. He told lawmakers Tuesday that the current insurance crisis is the biggest challenge he has faced in his 16 years as commissioner. 

The second proposal, House Bill 2, sponsored by Rep. John Stefanski, R-Crowley, would forbid those failed companies and their executives from obtaining the grants for any new companies they might have established.

Over the past year, many property owners have been forced to seek coverage through the Louisiana Citizens Property Insurance Corp., the state-run insurer of last resort that can only offer policies above market rates. It has left many homeowners with unaffordable premiums and has shifted risk onto the state.

Louisiana Citizens is now one of the largest property insurance providers in the state, having more than tripled in size since it held roughly 36,000 policies before Hurricane Laura on Aug. 27, 2020. Donelon said Louisiana Citizens currently holds 125,000 policies.

The incentive program would offer grants to insurance companies that take over the policies currently held by Louisiana Citizens. Donelon told lawmakers he expects it will depopulate about a third of the policies within the first year. Nine insurers so far have expressed an interest in participating, he said, urging lawmakers to act before thousands lose their homes.

“I truly believe that if we do not do this that thousands of homeowners below I-10 and I-12, frankly, are going to lose their homes, turn in the keys, can’t afford the coverage,” Donelon said.

When insurers become insolvent and cannot pay property owners’ claims, the state-chartered Louisiana Insurance Guaranty Association steps in to pay the outstanding claims. This debt is covered by fees assessed on the other insurance companies still operating in the state. Those companies ultimately pass the cost onto property owners by raising rates or onto taxpayers by claiming a premium tax credit from the state. 

Several lawmakers acknowledged the incentive program provides only a short-term solution and said more guardrails need to be established when the legislature convenes for its regular session in April. However, House Speaker Pro Tempore Tanner Magee, R-Houma, said he doubts the legislature will put forth the effort to fix the insurance crisis after this week. 

“Everybody’s preaching this mantra of ‘We do the quick Band-Aid now and we’re going to fix it in the general session,’” Magee said. “But we’ve all committed most of our bills already, so this notion that we’re going to actually come in in the general [session] and really fix this is probably a fiction that we’re telling our constituents back home because I doubt it’s really going to happen.”