Louisiana special session proposal seen as stopgap. No fix for reinsurance issue

The Louisiana state legislature is holding a property insurance focused Special Session this week, but the proposal is seen as a stopgap rather than a long-term fix, with reinsurance issues likely to persist in the current hard market.

As we reported a week ago, Louisiana’s Governor called a Special Session of the state legislature, with the sole goal of addressing property insurance issues.

The aim is to create and capitalise the Insure Louisiana Incentive Fund, with a proposed $45 million set to be used to encourage more insurance companies to underwrite business there.

Louisiana enacted similar legislation after hurricane Katrina, with an incentive fund to entice insurers back to the state.

This was seen to work, in bringing more market entrants. But, in 2023, it’s seen as perhaps insufficient, not a wide-ranging enough reform agenda and unlikely to solve the pending reinsurance issue carriers in Louisiana may face at this year’s mid-year renewal.

Conservative lawmakers have said that the incentive fund doesn’t go far enough and they have called for a more wide-ranging set of property insurance reforms, akin to those enacted in Florida recently.

There have also been calls for a state-backed reinsurance arrangement to take the pressure off the cost of renewing lower-layers of reinsurance towers when the renewals come around.

There are calls for reform of Lousiana’s bad faith statute, which sets up the rules for how insurance companies respond to claims, while the insurance rating law’s are also seen as in need of change, plus regulatory burdens are said to be too severe.

However, those in favour of the incentive fund say that enacting this now could encourage new insurance capital to the state in time for the renewals, meaning there is more competition and choice for consumers.

Rating agency AM Best has also weighed in, saying, “AM Best is of the view that Louisiana’s plan to appropriate $45 million in funds to attract insurance companies to take on more property risk and reduce the burden on the state-run insurer of last resort is likely to be a short-term stopgap as opposed to as an effective long-term fix given ongoing reinsurance issues.”

The rating agency further said that, “Accelerating reinsurance rates and declining reinsurance capacity, along with capital shortfalls and inadequate coverage, has translated to unaffordable prices for consumers and created availability challenges. Consequently, Louisiana Citizens Property Insurance Corporation, the state’s insurer of last resort, has grown at a dangerous pace – policies increased by more than 200% from January 2021 to August 2022.”

“Although Louisiana’s incentive program represents a step in the right direction, it does not solve the reinsurance issue, because companies that choose to participate in this program also may be dependent on reinsurance, and reinsurance capacity in high-risk zones has been constrained because of increased natural catastrophe activity and outsized losses in recent years,” explained David Blades, associate director, industry research and analytics, AM Best.

This week’s Special Session on property insurance in Louisiana will not make reinsurance any more affordable, for private market carriers or the state’s insurer of last resort Louisiana Citizens.

The 2023 Regular Legislative Session is scheduled for April 10th, but the general feeling is that it could be too late to enact meaningful reforms.

There is a chance though, that the regular session in April sees reinsurance for coastal property insurers in focus and as we saw in Florida last year, a state-backed lower-layer of reinsurance could help Louisiana’s insurers struggle through the renewal.