La. Legislative Votes to Re-Vamp State-Run Plans

A Louisiana bill that would reportedly overhaul the state’s FAIR and Coastal plans passed both the Senate and House this week and is headed to Gov. Mike Foster’s desk for his signature.

House Bill 1788, which creates the Louisiana Citizens Property Insurance Corporation to operate and manage the FAIR and Coastal plans, is among crucial reform efforts to rejuvenate the state’s insurance market, according to the National Association of Independent Insurers (NAII). Properties in high-risk areas that cannot obtain insurance in the standard market are placed in the FAIR and Coastal plans.

“Louisiana insurance companies have been assessed more than $100 million during the last three years to cover the losses of the FAIR and Coastal Plans,” said NAII Counsel Greg LaCost. “These assessments, combined with no procedure to recoup these payments, drive companies out of Louisiana’s insurance market. Since FAIR and Coastal Plan assessments are based on their percentage of market share, there is an enormous incentive for insurers to leave the state and a strong disincentive for those remaining to write new policies.

“We are confident that Gov. Foster understands the dire need to reform this stop-gap measure to get more insurers to write policies in Louisiana again so that consumers can benefit from more availability and competitive prices.”

HB 1788 is supported by the NAII and the Coalition to Insure Louisiana to revamp the state-run programs for homeowners unable to find coverage in the private market. The bill, based on a Florida program, would reportedly change how the programs are financed-holding down costs for private insurance companies that are required to support the state-run programs through fees assessed by the state. Currently, if a catastrophe such as a hurricane or other severe
weather storm touches down in Louisiana, insurers not only would be
responsible for their own customers’ claims, but they would also have to help fund the Coastal and FAIR claims.

The plan may permit corporate tax-free build-up of catastrophe loss reserves. It also allows bond financing to spread catastrophe losses over time and reduce assessments and spread the FAIR and Coastal Plans catastrophe losses over all property insurance policyholders.

“With many companies fleeing the state or writing only a few policies a year, the number of policyholders in the plan has grown from about 14,000 to 100,000 during the past 10 years,” LaCost said. “At the same time, the total insured values in these residual markets have grown from about $400 million in 1992 to more than $7 billion in 2002. These residual plans now have losses greater than premiums collected, and insurance companies in Louisiana are forced to pay these deficits as well as the claims on their own policies.”

The bill passed the Senate in a 37-2 vote with amendments. In a unanimous vote Thursday, the House accepted the Senate’s changes.

Another victory for consumers and insurers this week was the modification of House Bill 1448, which would enable insurers to use credit information on a limited basis to set rates and make underwriting decisions. Earlier versions of the bill would have outlawed insurers’ use of credit-based insurance scores. The bill now heads to the House and Senate floors for approval.

House Bill 2000, which would not have allowed rates for homeowners
coverage to vary more than 5 percent between parishes that share a border, failed to pass the Senate Insurance Committee this week.

“HB 2000 would have had a dramatic impact on homeowners insurance if it passed,” LaCost said. “Restricting the ability of insurers to se rates, based on claims experience and projections for an area, would further intensify the growing insurance availability crisis in the state as fewer insurers would find incentive to do business in Louisiana.

“We encourage Gov. Foster to continue to make sound decisions for the health of the state insurance market by signing SB 1788 into law,” LaCost commented. “SB 1788, together will the flex-rating measure the governor recently allowed to become law, will help improve the availability and affordability of insurance in the Louisiana.”

The 2003 Louisiana legislative session is scheduled to end Monday.