Louisiana OKs $45 million to lure insurance companies. Will your premiums go down?

The Louisiana Legislature gave final approval Friday to a $45 million deposit from the state’s general fund into an incentive fund meant to lure property insurers to the market. The vote brought to an end a five-day special session to address the state’s insurance crisis, which has forced 120,000 households to obtain coverage from the state’s property insurer of last resort.

Hurricane Ida in 2021 capped a two-year pummeling of the Louisiana coast following three major storms the year before. After Hurricane Ian shook the already-precarious Florida insurance market last year, the ripple effects have led policy writers with Gulf Coast exposure to leave the market or fold entirely. 

The situation has forced tens of thousands of policyholders to buy last-resort coverage from the Louisiana Citizens Property Insurance Corp. Insurance Commissioner Jim Donelon has said the $45 million was needed to attract companies that can absorb policies from Citizens, whose customers are already seeing a 63% increase in premiums. 

Donelon said Friday he believes there are between 75,000 to 80,000 “attractive” Citizens policies that incentivized insurance companies could take off its books. He expects 40,000 or so to come off within the next 12 months, similar to the rate after Hurricane Katrina in 2005 when the first iteration of the incentive program was created. 

The commissioner said the entry of new insurers into Louisiana will benefit not just Citizens customers, who by law must pay premiums 10% higher than the market average, but also homeowners throughout the state.

“I think as companies write policies out of Citizens, they’re going to want to write an equal number of policies to counterbalance that coastal exposure in central and north Louisiana,” Donelon said, explaining the added competition would likely result in lower premiums. 

Ahead of the 2020 hurricane season, which saw major storms Laura, Zeta and Delta strike Louisiana, the policy count for Citizens was down to about 35,000. Donelon’s projections for the current incentive program would pare the Citizens load back down to that level, which an insurance department official said Friday is the threshold amount to keep the insurer of last resort solvent.     

So what does the $45 million infusion mean for homeowners who have seen soaring premiums since the catastrophic hurricane seasons of 2020 and 2021? Is rate relief happening anytime soon? 

Donelon acknowledged what lawmakers have said before and during the special session: the $45 million in grants is only the first step toward potentially bringing down homeowners’ insurance rates.

What happened Friday

The lone area of dispute among lawmakers heading into the weekend was whether the conditions some wanted placed on companies with access to the $45 million could legally be added to the bill. The Senate Finance Committee removed three amendments Thursday that the House had added earlier in the week, but the full Senate restored two of them Friday.

One added back was a provision from Rep. Polly Thomas, R-Metairie, to place insurers that offer hail and wind coverage at the front of the line for the incentive cash. The other restored amendment, from Rep. Beau Beaullieu, R-New Iberia, creates reporting requirements for the state insurance department with details on the companies that are awarded incentive grants.

The only amendment not put back on the bill would have required 25% of the net premiums from new policies an insurer that accepts incentives writes come from the Citizens customer pool. 

Lawmakers had questioned whether such requirements would be legal because they attach conditions to an appropriations bill. In Louisiana, any such provisions must be handled through separate legislation.

Donelon said he expects new insurers to exceed the 25% mark once they have access to the incentives. Companies can receive from $2 million to $10 million from the state program, and they must write double the amount given in new premiums.  

The Senate gave unanimous approval to a bill from Rep. John Stefanski, R-Crowley, that prohibits executives and major shareholders of failed insurance companies from taking part in the incentive program through a new business.  

Late concerns

Heading into Friday, there were some qualms among legislators regarding the insurance’s department’s rules for the incentive fund. Another concern was an adjustment made in the act that revived the incentive fund. Sen. Kirk Talbot, R-River Ridge, authored the bill, which updated the measure that created a similar fund after hurricanes Katrina and Rita in 2005.

One major difference between the current and earlier versions is that insurers who want to take part in the incentive program now must have a minimum capital requirement of $10 million. That’s down from the $25 million basement established after the 2005 storms.

The minimum capital amount represents the assets an insurance company has on hand that could easily be converted to cash in order to satisfy claims.

Talbot, who chairs the Senate Insurance Committee, convened an informational hearing Friday where this matter and others were addressed. Officials with the Louisiana Department on Insurance were on hand to answer questions relative to the incentive program’s rules

Referencing data from the insurance department, Talbot said a $25 million minimum capital requirement would be too prohibitive for insurers to consider doing business in Louisiana. 

“Not realistic in today’s insurance market,” Talbot said.

Florida’s baseline is $15 million, he added, and $10 million would be more than adequate for Louisiana. Susan Gardner, Donelon’s chief of staff, confirmed that figure.

What’s next  

With the governor’s signature, Donelon will issue a request for proposals from companies that want to take part in the incentive program by the end of the month. Ten have already expressed an interest, the insurance commissioner said, and five or six are already doing business in the state. That would mean they could start absorbing Citizens policies by the end of March, he said.

Another two or three companies not licensed in Louisiana that have asked about the incentive can now seek the reinsurance coverage needed to write policies here, according to Donelon.

Once insurers are vetted, the Joint Legislative Committee on the Budget will have the final say on whether they receive incentive grants.  

For the regular session, Donelon said the Department of Insurance will get behind an effort to provide grants to homeowners in order for them to fortify their houses, ultimately lowering the risk to insurance and bringing down premium rates. Alabama launched a Fortified Home program in 2022 that offers grants of up to $10,000 to make roof improvements as well as window and door upgrades. Louisiana set up the framework for its own version last year. 

Donelon did not provide a dollar amount when asked how much he thought a fortifying program would need, but said he would be willing to accept as much as lawmakers approved.

Another area Donelon said lawmakers would be asked to address is insurance reform. He mentioned that interests from the insurance, real estate and banking sectors are likely to recommend a package of proposals taken from ones the Florida Legislature adopted in a December special session.

Republican lawmakers in Florida added another $1 billion to their insurance incentive fund and included a provision that makes it harder for policyholders to retain attorneys when insurance companies don’t satisfactorily pay their claims. Democrats called the measure a “bailout” for the insurance industry that did nothing to lower customer premiums.

Housing advocates in Louisiana have also been critical of the $45 million incentive allotment because it doesn’t provide direct support to homeowners. 

Louisiana Sen. Sharon Hewitt, R-Slidell, who’s announced she will run for governor, also mentioned the need for insurance reforms on the Senate floor. She specifically noted the state’s legal climate.   

“I do believe it is going to help some families with more affordable insurance,” Hewitt said in regards to the $45 million, “but our work is definitely not done.