Louisiana’s Temple Seeks Reform in Response to State Farm’s California Changes

Louisiana Insurance Commissioner Tim Temple pointed to State Farm’s decision to non-renew policies in the California market as a warning for lawmakers to modernize Louisiana’s regulatory framework and address legal system abuse – or risk insurers leaving the catastrophe-prone state.

“As natural disasters become more frequent and more severe, the insurance industry is taking a harder look at each state to determine whether doing business there is worth the risk,” Temple said in a March 26 statement. Tempe cited State Farm’s decision to non-renew 72,000 California property owners because of the state’s catastrophe exposure, inflation, reinsurance costs and outdated regulation.

“California’s insurance department recently acknowledged that overregulation is driving insurers away, and the agency is making an effort to modernize oversight of its marketplace,” Temple said.

Temple, who took over as Louisiana commissioner in January, said insurers and reinsurers have repeatedly told him they have three major concerns for doing business in the state: catastrophe exposure, overregulation and a poor legal environment.

Louisiana lawmakers are currently in regular session, where they’re considering a series of industry-friendly bills that would address overregulation and tort reform.

“If we don’t enact bold change this session, I believe our ongoing insurance crisis will not just stay the same — it will get worse,” Tempe said.

Louisiana’s property market is recovering from a string of catastrophic hurricanes in 2020 and 2021 that led insurers to pay out more than $23 billion in claims, according to the Triple-I. State Farm, the largest writer of homeowners premium in Louisiana, incurred direct losses of more than $2.3 billion in 2021.

State Farm writes nearly one-in-four homeowners policies in Louisiana as of the most recent data provided by the Louisiana Department of Insurance. The insurer has given no indication of pulling back from the state as it has done in California.

State Farm’s decision to not renew 30,000 California homeowners policies and withdraw from another 42,000 commercial apartment policies was shaped by the “limitations of working within decades-old insurance regulations,” the insurer said.

State Farm said it will continue to work constructively with the California Department of Insurance, the Governor’s Office, and policymakers to actively pursue “reforms in order to establish an environment in which insurance rates are better aligned with risk.”

Temple, in pushing for reforms in the current legislative session, seeks a proactive resolution with insurers.

“His main thrust is to have a free market system in insurance,” said Louis Fey, a 40-year insurance expert witness and consultant based in Baton Rouge.

One of Temple’s top initiatives for this legislation session are doing away with Louisiana’s three-year rule. The rule prevents insurers from non-renewing a homeowners’ policy that has been in place for three years unless there’s a substantial change in risk.

Senate Bill 370 would repeal the three-year rule, with a clause for grandfathered-in policies. The bill passed the Senate by a 28-9 vote.

Another proposal, Senate Bill 323, would reduce penalties under Louisiana’s “bad faith” law, which was enacted after Hurricane Katrina. As the law currently stands, homeowner can collect a penalty of up to 200% of the value of the loss if a court rules an insurer avoided to pay a disaster-related claim out of bad faith.

The proposed bill, which passed unanimously through the Senate, would reduce the penalty to 50%.

Under previous Louisiana commissioner Jim Donelon, lawmakers tried to address the property insurance crisis by awarding grants to insurers who would commit to writing a certain amount of premium in the state. Temple has said he will do away with that program but will keep the Louisiana Fortify Homes Program, which offers grants of up to $10,000 to homeowners to fortify their roofs.

Photo: Flooding and Damage to homes a day after Hurricane Ida.