Possible policy purge looms as Louisiana gets closer to ending 3-year rule for property insurers

State lawmakers are on track to repeal a consumer protection law adopted in the early 1990s that stops homeowner insurance companies from canceling policies without good reason. The new proposals would further empower the Louisiana insurance commissioner to approve mass policy cancellations, with such plans hidden from the public. 

Senate Bill 370, sponsored by Sen. Adam Bass, R-Bossier City, advanced from the Senate in a 28-9 vote Tuesday. House Bill 611, sponsored by Rep. Gabe Firment, R-Pollock, passed in the House of Representatives in a 72-32 vote Wednesday. 

The bills are nearly identical. Both would repeal Louisiana’s unique three-year rule, which prohibits insurance companies from raising deductibles, canceling or not renewing homeowner policies that have been in effect for more than three years.

If either of the proposals are approved, insurers would be allowed to cancel up to 5% of their policies each year as long as the policies aren’t all in one parish. 

The 5% mark is not a hard cap. Insurers can cancel as many policies as they want with approval from the insurance commissioner. 

A provision in the legislation declares an insurer’s cancellation plan a corporate “trade secret” not subject to Louisiana’s Public Records Law. 

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The proposals are part of Insurance Commissioner Tim Temple’s agenda, which consists of industry-friendly bills he has said are needed to bring competition back to Louisiana. With more insurers writing policies, he believes property owners will seek lower premiums.

Before winning election last year, Temple spent more than two decades in the insurance industry, managing and owning the kinds of companies he now regulates.  

Louisiana, particularly the southern part of the state, has some of the highest property insurance premiums in the nation. An increase in the frequency and strength of hurricanes has fueled rate increases — and led some of the largest insurers to stop offering policies in coastal areas.

Temple has argued that the three-year rule is the biggest obstacle keeping insurance companies from doing business in Louisiana. Bass and other Republican lawmakers have repeated this argument. 

“What we’re trying to do here is make it more free market and attract more competition into the state to be able to write business,” Bass said during debate on the Senate floor Tuesday.

When Sen. Joseph Bouie, D-New Orleans, asked if new insurance companies would come to Louisiana after the bill is enacted, Bass backpedaled, saying the bill is actually only one piece of a larger puzzle.

Bouie and other Democrats argued the three-year rule is the only thing stopping further rate hikes and cancellations. They also rejected suggestions that Louisiana’s insurance crisis is the result of burdensome regulations and excessive lawsuits.

Louisiana’s insurance market operated many years under the laws Temple says must now be repealed. The current crisis began when five costly disasters hit the state between 2020 and 2021, sending several small insurers into bankruptcy or prompting them to leave the hurricane-prone state for areas of lower risk.

Sen. Kirk Talbot, R-River Ridge, argues the three-year rule is part of the problem.

“What good is the three-year rule right now?” Talbot said. “We can’t afford the premiums we have.”

The rule only prevents insurance companies from being able to manage risk by canceling risky policies, he said. Instead, it has forced insurers to raise premiums. 

The three-year rule already has some exceptions that allow insurance companies to cancel policies that become too risky. Reasons include a “material change in the risk being insured” or if renewing a policy “endangers the solvency of the insurer.”

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During debate on the House floor Wednesday, Rep. Matt Willard, D-New Orleans, questioned the motives driving the legislation. If the goal is to bring new insurance companies to the state, the bill should only affect future policies and shouldn’t be applied retroactively, he said. 

The immediate effect of the legislation will be a purge of the riskiest policies, Willard said, forcing those homeowners to buy the most expensive, last-resort coverage from the state-run Louisiana Citizens Property Insurance Corp. 

“Do you think new insurance companies are gonna come in and pick up the riskiest policies?” Willard asked.

Rep. Bryan Fontenot, R-Thibodeaux, told colleagues he was torn on how to vote on the bill. He said it is unlikely to affect him personally because his house is just four years old, but he said it would certainly cause his grandmother to lose her coverage along with other elderly and poor people in his district and across the state.

On the other hand, Fontenot said, previous ideas to fix the insurance crisis haven’t proven all that effective. 

“Ask yourself, ‘If this don’t work, what’s next?’” Fontenot said before voting in favor of the bill. 

The measures now switch chambers, where they face additional committee and floor votes prior to final passage.

Correction: This report was updated to indicate when the three-year rule was first adopted in Louisiana.