Louisiana special session proposal viewed as stopgap measure. No solution to the reinsurance problem

The Louisiana state legislature is holding its property insurance-focused special session this week, but the proposal is seen as a stopgap measure rather than a long-term fix as reinsurance issues are likely to persist in the current tough market.

As we reported a week ago, the governor of Louisiana called a special session of the state legislature with the sole purpose of addressing property insurance issues.

The goal is to create and capitalize the Insure Louisiana Incentive Fund, with a proposed amount of $45 million to be used to encourage more insurance companies to underwrite business there.

Louisiana enacted similar legislation with an incentive fund after Hurricane Katrina to lure insurers back into the state.

This has been found to work to attract more market participants. But in 2023, it’s seen as potentially insufficient, not a far-reaching enough reform agenda and unlikely to solve the pending reinsurance issues Louisiana carriers may face at this year’s mid-year renewal.

Conservative lawmakers have said the stimulus fund doesn’t go far enough, and they have called for a broader set of property insurance reforms similar to those recently passed in Florida.

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

There are calls for reform of Lousiana’s bad faith law, which sets the rules for how insurance companies respond to claims, while the insurance appraisal law is also seen as in need of change and the regulatory burdens considered too heavy.

But supporters of the stimulus fund say passing it now in time for the state’s renewal could stimulate new insurance capital, meaning there’s more competition and choice for consumers.

Ratings agency AM Best also weighed in, saying: “AM Best believes Louisiana’s plan to allocate $45 million in funding is designed to encourage insurance companies to take on more property risks and relieve the burden on the state-run insurer of last resort.” will be more of a short-term stopgap solution than an effective long-term solution given the ongoing reinsurance problems.”

The rating agency went on to say: “Increasing reinsurance rates and declining reinsurance capacity, combined with capital shortfalls and inadequate coverage, have resulted in unaffordable prices for consumers and created availability issues. As a result, Louisiana Citizens Property Insurance Corporation, the state’s insurer of last resort, has been growing at a dangerous pace – policies increased by more than 200% from January 2021 to August 2022.”

“While Louisiana’s incentive program is a step in the right direction, it does not solve the reinsurance problem because companies that choose to participate in this program may also be dependent on reinsurance and reinsurance capacity in high-risk zones is limited due to increased natural catastrophe activity and outsized losses in recent years,” said David Blades, Associate Director, Industry Research and Analytics, AM Best.

This week’s special session on property insurance in Louisiana will not make reinsurance more affordable, either for private market sponsors or for state insurers of last resort for Louisiana citizens.

The 2023 regular legislative session is scheduled for April 10, but there is a general feeling that it may be too late for meaningful reforms.

There is a chance, however, that April’s regular meeting will focus on reinsurance for coastal property insurers, and as we saw in Florida last year, a state-backed lower tier of reinsurance could help Louisiana insurers struggle through renewal.