This is what should happen when flood insurance is on the table. Not in Louisiana.
The insurance commissioner needs the approval of the state legislature to give incentives to companies so they provide flood insurance.
Insurance Commissioner Jim Donelon’s request to fast-track funding for an incentive program was rebuffed by state lawmakers this week, leaving the effort in limbo until the next legislative session starts in April. Donelon had urged lawmakers to allow him to use $15 million in leftover premium tax revenue that the insurance department collects to kickstart the Insure Louisiana Incentive Program. The effort was first launched in the years after Hurricane Katrina to lure property insurers to the state and get them off the rolls of Louisiana Citizens Property Insurance Co., the state-run insurer of last resort. Donelon warned earlier this week that if Citizens doesn’t begin to trim its swollen roster of policyholders – which now stands at 129,000 – it will be forced to spend big on reinsurance in the spring when those contracts are generally negotiated. State lawmakers agreed to revive the incentive program earlier this year but left it unfunded.nola.com
The Department of Insurance get over $1B in payents and these are the funds that were going to be used.
Since the Louisiana Department of Insurance collects more than $1 billion every year from premium taxes to fund its operations, Donelon wanted to use the leftover revenue that is normally returned to the state’s general fund to pay for the incentives. But lawmakers at the Revenue Estimating Conference, which met Thursday, were skeptical of his preferred approach. They suggested that Donelon faced more hurdles to restarting the program beyond the funding. “We’re hesitant generally in government to put the cart in front of the horse,” said Senate President Page Cortez, R-Lafayette. “It’s always better to make sure you have everything laid out and then you fund it.” Cortez said the state is in a good position to fund the incentive program, but noted that the rules that will govern it have not yet been approved. “Remember there’s an oversight by the Legislature in the rulemaking process, which can delay the rules from becoming effective,” Cortez said. “I think your end of February was best case scenario; it could be April or May before the rules get to final publication.”
Donelon, hoping for a special session is instead back at the drawing board. Who will suffer – citizens.
Donelon, who floated the idea of convening a special session to take up the incentives, was sent back to the drawing board. In a prepared statement, the commissioner said he would consult with Senate Insurance Committee Chair Kirk Talbot, R-River Ridge and House Insurance Committee Chair Mike Huval, R-Breaux Bridge, to discuss whether a special session is the most effective path. “I understand the Revenue Estimating Conference’s reticence to facilitate funding of the Insure Louisiana Incentive Program at (Thursday’s) meeting as it would have been a novel approach to mid-year budget changes that could have unintended consequences in other situations down the road,” Donelon said. Donelon has been trying to halt a spiraling insurance crisis that’s only expected to get worse after nearly a dozen insurers failed in the last year. He told lawmakers that the shakeup in the property insurance market is being driven largely by the cost of reinsurance – insurance purchased by insurers. There’s less interest in underwriting the risk for potential global catastrophes in the secondary insurance market abroad. So small insurers are having a harder time finding reinsurance to backstop their potential losses. And reinsurers are charging them more money.
This is not a good trend for either the state or the citizens who need insurance.
This trend is significant for hurricane-prone Louisiana, and even more so for Louisiana Citizens. After roughly two dozen insurers either failed or stopped writing policies in the state, home and business owners were forced to flee to Citizens which, in many cases, was the only option left. The migration after Lighthouse Excalibur Insurance Co. and its affiliate Lighthouse Property Insurance Corp. both collapsed. Then Southern Fidelity Insurance Co. was also declared insolvent. Collectively, they sent more than 60,000 policyholders to Citizens. Meanwhile, the number of Citizens policies has more than tripled since 2020, rising to more than 129,000 this year. Donelon said the organization purchased enough reinsurance last year to cover about 65,000 policies, but with the growth in the rolls, the cost will be significantly more in 2023. Citizens was granted a 63% rate increase this year to compensate for rising reinsurance costs. Donelon has said that another hefty rate increase could be in store if the state is unable to shed many of those policies.
We are here from the government and ready to help you. Well, not quite.