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Give me my incentives or come back for a special session.

Louisiana Insurance Commissioner Jim Donelon said he might ask political leaders to convene a special session in early 2023 if two legislative committees do not approve his plans to relaunch a multimillion-dollar incentive program this week.  Donelon’s comments come amid a spiraling crisis in Louisiana’s property insurance market, which has seen at least 23 insurers pull up stakes or go belly-up since 2020’s Hurricane Laura. To right the ship, Donelon wants to give grants to insurance companies to write property insurance in the state. The grants would go to insurers willing to take on some of the riskiest policies now covered by the state-created Louisiana Citizens Property Insurance Corp.  If that doesn’t happen, Donelon warns, Citizens could see massive rate hikes next year, on top of the 63% increase its policyholders are already facing.

The Insure Louisiana Incentive Program started after Katrina.

The Insure Louisiana Incentive Program was first launched in the years after Hurricane Katrina and backed by $100 million in state funds. Five insurers participated, collecting about $29 million in incentive payments. Lawmakers agreed to revive the program this year, but did not provide funding.  For months, Donelon has been touting the incentive program as the best strategy to lure property insurers to Louisiana in the wake of the failures and departures. Last week, the financially hobbled United Property and Casualty Insurance Co., which had written about 3% of the total premiums in the state, became the latest company to pull out.   “The crisis is closing in on us,” Donelon said, “and (we) could end up asking the Legislature to call a special session to fund the incentive program.” Past efforts to get private insurers to take risky policies away from Citizens have succeeded in trimming Citizens’ rolls, but many of the private firms later failed.

The money has been identified but the legislature has to approve it.

For the new incentive effort, Donelon wants to use funds left over from the LDI budget at the end of the year, money that usually totals between $15 and $20 million, he said. But first, the agency needs approval from the Joint Legislative Committee on the Budget and the Revenue Estimating Conference, both of which will meet on Thursday.  The plan will likely be held up at least until January due to a procedural inconvenience, said Kirk Talbot, R-River Ridge, who chairs the Senate Insurance Committee. The Revenue Estimating Conference must first recognize the money as surplus before it can be redirected to the incentive program. But the body is scheduled to meet after the budget committee, which approves funding transfers.    “As far as the special session goes, there’s really no talk about it right now,” Talbot said. “If everything goes well Thursday, we’ll rock and roll in January and everything will be lined up right to get it going.”  

This is December and the hurricane season is coming when you figure an insurance company has to get the client and write the policy.

Donelon said he’s working within a small window of time to mitigate the financial pain that’s heading toward Louisiana Citizens’ policyholders.   As insurer after insurer collapsed over the last year, tens of thousands of consumers fled to the state-created insurer of last resort. As a result, Citizens’ policy count more than doubled in the span of a few months. The mass migration also left Citizens without enough reinsurance to cover all of its new customers.  Primary insurers rely heavily on reinsurance agreements as a backstop in the event of a catastrophe where claims exceed what they can pay.    Donelon, who is a non-voting member of the Lousiana Citizens board, said the organization purchased enough reinsurance last year to cover about 65,000 policies. That number grew as more insurers failed. Citizens has more than 120,000 policyholders today.  Still, the rising cost of insuring those policies played an outsize role in the approval of an average 63% rate increase for personal lines policies earlier this year, including homeowners coverage. The average hike will be significantly higher in many coastal parishes: In St. John the Baptist Parish, hard hit by 2021’s Hurricane Ida, for instance, average increases are projected at 111%.

Spring is the time most buy insurance or reapply for what they had. With so many dropping out there are a lot to be insured.

Every year, most insurers purchase new reinsurance contracts in the spring, before hurricane season. So unless Citizens is able to offload a big slice of policyholders, when it goes to purchase reinsurance coverage in 2023, it will be buying coverage for twice as many policyholders as last year. That would force another steep rate increase on consumers, Donelon warned.   “If it’s actually 125,000 when they get to the reinsurance market in February-March, then that will drive the cost up again,” Donelon said. “It may be a 75% rate increase next year.”   

I am glad I am not in that boat!

We need incentives says top regulator of insurance