Insurance news. Amid insurance crisis, crowd packs New Orleans meeting to gripe about spiraling premiums.

Amid insurance crisis, crowd packs New Orleans meeting to gripe about spiraling premiums

About 100 people packed a public meeting in New Orleans on Wednesday night to express their frustrations over skyrocketing home insurance rates and lob questions at Louisiana’s top official tasked with regulating an industry that is overwhelmed with claims after two years of major storms.

Insurance Commissioner Jim Donelon and members of the New Orleans delegation to the Legislature sought to assure residents that recent laws will help stabilize the teetering industry. That includes new requirements that companies keep more cash on hand to pay the bulk of claims after large-scale disasters.

But those changes don’t take effect until 2026. And they offer no relief to the thousands of residents saddled with an explosion in premiums after seven insurance companies went under in the past year.

The crowd, in a ballroom at the University of New Orleans, applauded when a legislator posed to Donelon the question that seemed to be on everybody’s mind: What will it take to drive down the cost of homeowner insurance in Louisiana?

Louisiana Commissioner of Insurance Jim Donelon hosts a public meeting on the state's insurance woes at the University of New Orleans on Wednesday, Aug. 3, 2022.

STAFF PHOTO BY SOPHIA GERMER

Donelon offered no immediate fixes. He said it’s essential that the state fortify its building codes and offer financial incentives to insurance companies to write policies in risky areas.

The insurance commissioner was joined in the question-and-answer session by officials from the Department of Insurance and the Louisiana Insurance Guaranty Association, a state-related entity tasked with covering claims owed by insurance companies that go insolvent.

The association's John Wells said that just this week the association has paid about $10 million to customers of Lighthouse Insurance Corp. and its subsidiary, Lighthouse Excalibur Insurance Co., which were forced into receivership earlier this year. The companies held more than 30,000 policies.

To help cover other losses and replenish its reserves, the association expects to borrow $600 million by issuing bonds. This will mark the first time in three decades the association has had to take such a step.

People listen to Louisiana Commissioner of Insurance Jim Donelon talk about the state's insurance woes during a public meeting at the University of New Orleans on Wednesday, Aug. 3, 2022.

STAFF PHOTO BY SOPHIA GERMER

Meantime, when some customers of failed companies seek a new insurer, they’re facing costs that are double or triple what they had under their old policy.

“Why can’t they get a policy comparable to what they were already paying?” said Rep. Jason Hughes, D-New Orleans, reading a question submitted by a resident.

“I don’t have an answer for that,” Donelon said. He said lawmakers would have to step in and offer a round of emergency funds to help bridge the gaps.

Donelon offered other recommendations:

Ask your mortgage lender for help obtaining or adjusting your policies.

When home repairs cost more than adjusters expect, file follow-up claims to cover the difference.

If a company drops a policy you’ve held for at least three years, file a complaint with the Insurance Department.

In opening remarks, Donelon and legislators laid out the case for why Louisiana’s home insurance industry has reached a tipping point.

“Many of our citizens are facing a crisis, one we understand you did not create,” Hughes said.

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More cash reserves

Legislators pointed to several proposals aimed at addressing the issue. That includes new laws to raise the amount of cash insurers must have on hand - the first line of defense for paying claims after disasters.

The minimum will increase from $3 million to $5 million by 2026, and $10 million by 2031. Donelon said lawmakers copied legislation from Florida, which years ago increased its minimum to $10 million.

The four hurricanes to make landfall in Louisiana since late 2020 have plunged the state’s homeowners insurance market into deep disarray. Property insurers have paid out $18.4 billion in claims as of June 30, according to Department of Insurance data. About $11 billion of that was paid to homeowners, the data shows.

Seven failed companies

Donelon has described the situation as a “crisis,” and he called Wednesday evening’s town hall meeting to take and answer questions and offer perspective. 

Amid the avalanche of claims, seven insurance companies have failed in the past year. Five of those firms left behind some 26,000 claims for the state’s bailout program to close out, pushing the burden onto the Louisiana Insurance Guaranty Association.

The association is supported by fees assessed to other insurers that write business in the state. Its current plan to borrow money to pay off claims marks the first time in three decades it has taken such a step.

12 more leaving Louisiana

Meanwhile, at least 12 companies have submitted withdrawal notices with the Department of Insurance in the past two years, meaning they’re leaving Louisiana. Some have cited the recent storms as their reason. The companies that have opted to stay have slowed or stopped writing new policies.

The combined effects of the marketplace shakeup are shifting more people to the state’s insurer of last resort, the Louisiana Citizens Property Insurance Corp. As of March, some 13,000 policyholders were added to the state’s insurance rolls - a 37% increase since Hurricane Laura struck in 2020.

The Department of Insurance found firms to take over the policies from the first four companies that failed, securing policyholders coverage without much disruption. But the 64,000 customers who relied on the other three collapsed firms - Lighthouse Property Insurance Corp., Lighthouse Excalibur Insurance Co and Southern Fidelity Insurance Co. - were cast into the open market to find their own solutions.

Subsidies for new insurers

Homeowners say they’re finding fewer options and higher prices while searching for new coverage.

Donelon has said he wants to restart a program that Louisiana created after Hurricane Katrina in 2005: Offer direct subsidies to insurers that were willing to start writing policies in Louisiana.

In all, the state spent $29 million on the Insure Louisiana Incentive Program. The incentive was ended in 2009,  after auditors raised concerns that the funds were disbursed before a grant agreement was signed. 

The Legislature reauthorized the program this year but did not fund it.

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