Beginning Monday, insurers can resume the process of canceling or non-renewing coverage for policyholders in southeast Louisiana after the state’s top insurance regulator opted not to extend emergency protections issued ahead of Hurricane Ida.
On Aug. 26, Insurance Commissioner Jim Donelon invoked Emergency Rule 47, barring insurers from interrupting or dropping coverage, even for non-payment of premiums, for policyholders within 25 parishes in Ida’s path. The order was extended once but expired Sunday, Oct. 24.
In allowing the protections to sunset, Donelon argued the order put a financial burden on the state’s insurers, who are under “significant stress” as they confront upwards of $20 billion in insured losses and hundreds of thousands of claims.
The Department of Insurance is in contact with “several” insurers who are facing “solvency concerns” as a result of Ida’s destruction, Donelon said. He would not say which insurers that included.
But last week, just as Donelon was considering whether to pursue an extension to the policyholder protections, he got concerning news: an insurer was pulling out of Louisiana’s market altogether.
That company, GeoVera, commands 1.63% of the homeowner’s insurance market in Louisiana and operates as a surplus carrier, covering the sort of high-risk properties that standard insurers won’t cover. The carrier is also leaving South Carolina, according to Donelon.
“For them to come in, because of their losses from Ida, and say, ‘We’re out of here. We’re exiting the state,’ is not a good sign,” Donelon said. “It’s a significant indication of real concern on the part of the companies for Louisiana.”
Donelon described GeoVera and other surplus lines, like Lloyd’s of London, as the “cowboys of the insurance industry.” Free from standard rate and form regulations, they rush into markets where others fear to tread, with coverage that is generally more expensive than regular insurance.
Just six months ago, Donelon said GeoVera assured him that they were here to stay and would “write aggressively into the teeth of the coastal retreating market” in southwest Louisiana. That was before Ida tore a catastrophic path through southeast Louisiana with its racecar fast winds.
There are enough insurers remaining in Louisiana to absorb GeoVera’s policyholders, Donelon said, but the firm’s decision to exit nudged him away from asking the Legislature’s insurance committees for permission to extend Rule 47 for another 30 days.
The Independent Insurance Agents and Brokers of Louisiana asked Donelon to continue the protections on a limited basis, narrowing it to cover those who experienced property damage, said Jeff Albright, the organization’s CEO.
But Donelon declined, arguing that the emergency protections amounted to “free insurance” for policyholders.
That’s because, in most cases, policyholders who didn’t have a claim arise after Ida now have the option to change carriers without paying their premiums for that 60-day period. Insurers can sue for those payments, but Donelon said they rarely do.
Cancellations won’t happen overnight. By law, notices have to be sent to policyholders. And carriers that were in the middle of non-renewal process when Ida hit will have to start the notification process over again, Donelon said.
Furthermore, unlike other states, insurers in Louisiana are “wedded” to policyholders after three years of business. The one-of-a-kind Louisiana law protects the insured from having their coverage canceled or non-renewed, with an exception carved out for properties that experience two or more “Act of God” claims within a three-year period of coverage.
Still, Donelon expects premiums to increase by 10 to 12 percent next year. And insurers seeking to reduce their exposure are likely to increase the deductibles they charge during hurricane season in an effort to chase off policyholders.
The market fluctuations come as thousands in southeast Louisiana begin the long, arduous process of haggling with their insurance companies over payouts for damages. Donelon said that according to conversations he’s had with insurance agents, a third of all claims stemming from Hurricane Ida have been closed.
“It bothers me greatly to hear that thousands of people are having these communication problems, slow adjustment problems, slow pay problems, but we’re in the process of fielding complaints from consumers against companies,” Donelon said.
With frustrations mounting, state lawmakers are already combing through consumer protection proposals for possible introduction during next year’s legislative session. However, as is often the case when insurance regulations are introduced in Baton Rouge, fears of scaring off insurers and causing prices to rise often win out over reforms.
“It’s always a very difficult line to walk. First and foremost, I’m here to protect consumers,” Donelon said. “A major part of that is monitoring the solvency of the companies that they buy insurance from … After I do that, the next thing I have to do is make sure that insurance is affordable and available to consumers.”