Today, the Louisiana Legislature convened a special session to address the issue of funding for the Insure Louisiana Incentive Fund. Governor John Bel Edwards called for the emergency session in response to mounting concerns over the stresses placed on the Louisiana Insurance industry by Hurricanes Zeta, Laura, Delta, and Ida in 2020 and 2021. The series of hurricanes led to over 600,000 residential property claims which totaled approximately $18.4 billion paid out by property insurers.
The effects are not isolated on a state-by-state basis either. The impacts on other state insurance markets by other recent hurricanes, such as Hurricane Ian in Florida, cascade across markets of states all along the gulf coast. This has caused significant solvency issues for insurers operating in the region, as they cannot rely on stability in other markets to cover the immense short-term pressure caused by the exceptionally high volume of claims in Louisiana. Over two dozen companies that wrote homeowners policies in Louisiana have either gone insolvent or pulled out of the market.
The lack of companies active in the Louisiana market reduces the competition in the market. This, combined with the threat posed by future hurricanes, poses a grim outlook for a state already battling to keep insurance affordable and available to its citizens.
While not limited to the homeowners' insurance market, Louisiana homeowners are facing the brunt of this crisis. Already dealing with the physical toil of rebuilding their homes and lives, thousands of families now face the difficult decision of either having to pay much higher premiums or having no coverage at all.
The legislature and Governor Edwards plan to address longer term solutions to the state’s insurance woes in the April legislative session, but agreed to hold this special session at the behest of Insurance commissioner Jim Donelon. Commissioner Donelon stressed that “time is of the essence” with respect to securing funding for the Incentive Fund. The 2023 hurricane season is already fast approaching, and to attract and keep insurers in the Louisiana market, those companies may need reinsurance in order to ensure that they can pay out potential claims. Commissioner Donelon aims to have $45 million allocated to the fund by the legislature. Though this is not a long-term solution, it can provide relief in the short term, and perhaps be the first step of many to alleviating the ongoing pressures on the Louisiana insurance market.
What does this mean for companies operating in Louisiana? The special session reflects both concerns and opportunities for those doing business in the state. Companies now face both legislative and market uncertainty. This naturally poses difficulties to both insurers and insureds seeking stability in their plans and operations moving forward. The fund may facilitate greater access to reinsurance - or possibly better terms on the reinsurance market. This gives companies the opportunity to stabilize their position for at least the upcoming hurricane season, and gain fiscal relief when it otherwise might not be available. By stabilizing now, companies can put themselves them to be in a much more competitive position when a longer-term plan for addressing the issues of the Insurance market is put in place.
Adams and Reese is closely monitoring the legislature’s special session, its plans for addressing a longer term solution in the April session, and the potential effects these decisions will have for our clients.