In a news conference on March 10, 2022, Louisiana Insurance Commissioner James Donelon joined legislators in announcing the department of insurance’s joint policy goals and initiatives for the 2022 legislative session.
Commissioner Donelon joined Sen. Kirk Talbot and Rep. Mike Huval to announce the six-bill package, which the state officials lauded as addressing the changing landscape needs they saw in the aftermath of Hurricanes Laura, Delta, Zeta, and Ida.
Donelon expressed support for the Catastrophe Reform Package as a whole before introducing the first two bills.
“I want policyholders across the state to know we have heard their concerns and we are taking action to deal with them,” said Commissioner Donelon. “Our Catastrophe Reform Package addresses ongoing issues from the last few hurricanes while establishing forward-looking protections that will help policyholders in the future.”
Donelon noted recent hurricane seasons have changed the landscape of property insurance for Louisianans, saying the state recognizes the need to adjust its approach to address these challenges.
“Our top priority is ensuring the consumers of Louisiana are protected in the aftermath of these events,” Donelon said.
Additional Living Expenses
The first bill introduced in the conference by Commissioner Donelon was Louisiana Senate Bill 134, authored by Sen. Talbot.
The Additional Living Expenses bill clarifies that “prohibited use coverage” clauses should be triggered by the realistic need for an area evacuation in circumstances covered by civil evacuation orders or even public safety announcements. Basically, additional living expenses coverage, or prohibited use coverage, is insurance that pays the insured for times and situations when they can’t use their insured property or service. For example, if a home is damaged and a homeowner needs to live elsewhere until the claims come through to repair the home. Or, for a business, this coverage could help when they are unable to use their equipment and office space.
If you’re interested in the full text, read the original draft here. But the backstory is that, when Hurricane Ida landed in Louisiana in 2021, there wasn’t much warning. Instead of issuing formal evacuation orders, many civil authorities and parish officials simply evacuated via public safety announcements, news releases, and any other messages they thought would reach people immediately.
People vacated homes or businesses quickly, then filed loss of use or additional living expenses insurance coverage after. Many insurers, however, denied claims on the grounds that the clauses must be triggered by a formal evacuation order by civil authorities.
“I would remind you of my directive 218, ordering insurers to pay loss of use claims for insureds who evacuated ahead of Hurricane Ida despite not having a formally recognized state of emergency,” said Donelon in the press conference. “Our citizens should not have to worry about whether they will have insurance help in protecting their children and families when they’re deciding to evacuate.”
Donelon’s Directive 218 in 2021 ultimately ordered insurers to pay loss of use claims if there was a legitimate need for evacuation, regardless of civil procedure, and was the basis of inspiration for this bill.
Minimum Capital and Surplus Requirements
Donelon also introduced Senate Bill 264, authored by Sen. Joseph Bouie. The bill raises minimum capital and surplus requirements for Louisiana’s property and casualty (P&C) insurance carriers in an attempt to prevent incidents of insolvency.
Currently, P&C insurers in Louisiana must have $3 million in surplus capital to be in good standing with the state department of insurance. New requirements would gradually increase surplus requirements to $5 million in 2026 and $10 million in $2031 for carriers currently operating in the state. However, beginning Sept. 1, 2022, new insurers would need to meet the $10 million surplus amount to apply for a certificate of authority. (Read the full text of the original bill here.)
Donelon provided the context for this bill, as well, reminding news conference attendees that, in the aftermath of Hurricane Katrina in 2005, major national carriers retreated from the state. Louisiana’s P&C insurance industry now comprises small carriers. In 2021, three companies failed under the obligations of the hurricane season. While another carrier, SafePoint, was able to absorb the failed insurers, Donelon expressed the hope that increased surplus requirements would encourage the remaining carriers to have “more skin in the game and less reinsurance of risk obligations.”
The Three-Adjuster Rule
Sen. Talbot introduced one of the bills he authored, Senate Bill 198, named the “Three-Adjuster Rule.” The rule addresses the situation where people who file claims in high-volume times (such as in the aftermath of a hurricane) cycle through numerous adjusters. The rule would require carriers, on the third adjuster, to provide the claimant with a detailed history of their claim, a summary of actions taken, and a thorough status report. It would also require the carrier to designate an internal contact who is well-acquainted with the case to provide claimants with two methods of communication for receiving updates and inquiring about the case status.
Sen. Talbot said the bill was in response to concerns of constituents who, while filing claims to repair their homes and businesses in the aftermath of storms, found themselves assigned to three or four different adjusters in the course of a few months.
“They have to start the process over and over, and they don’t feel heard,” said Talbot.
While some speculated that this practice is a delay tactic on the part of insurance companies, Donelon said he “genuinely tries to give the benefit of the doubt” to insurers, who he pointed out have to comply with a 60-day “fuse” for initiating the claims process. Any given insurer may be beginning those claims for tens of thousands of claimants in the aftermath of a hurricane, and have a limited candidate pool of experienced adjusters to handle them.
Donelon noted this rule “addresses the most-frequent concern raised in the 4,000 complaints we received from consumers in the aftermath of Ida.”
Policyholder Non-Renewal Protections bill
Sen. Talbot also introduced Senate Bill 162, another he authored, which would prevent insurance carriers from canceling Louisiana policies until 90 days after the governor declares a state of emergency for an event that causes damage to the insured property.
The bill would also require the canceling insurer to provide a 90-day notice of their intent to cancel or nonrenew a policy.
The new protections would prevent carriers from canceling policies in anticipation of an insured event, and aim to incentivize insurance carriers to prioritize processing claims for damaged properties, even if they intend to cancel or not renew coverage.
Louisiana Fortify Homes Program
Rep. Huval introduced House Bill 612, which he authored to create the Louisiana Fortify Homes Program.
According to Huval’s text, the program would be housed within the Louisiana Department of Insurance and would provide grants and incentives for homeowners to upgrade their properties to meet more durable standards, such as the “FORTIFIED Roof” standard to withstand hurricane damage. The text creates a provision to appropriate up to $10 million in funding annually from the rest of the funds generated by the LDI through fees and penalties.
As Rep. Huval noted, his neighborhood was fortunate enough to have minimal damage in the 2021 hurricane season, but as he helped friends, he saw that in some neighborhoods, one home would show evidence of superficial damage while the house next door would be completely destroyed.
“I believe this program in HB 612 will help a lot of folks resist home damage,” said Huval. “I hope it will convince more people to move to a fortified home standard moving forward.”
Catastrophe Response Plan Improvements
Rep. Huval also discussed a bill he co-authored with Sen. Talbot, House Bill 280. The bill would require Louisiana insurers to craft catastrophe response plans before something happens.
Instead of waiting until there’s a hurricane or a wind storm, Huval said the bill intends to put the onus on insurance carriers to determine ahead of time:
- Emergency contact information for essential personnel
- Processes for expediting claims
- Plan for maintaining communications with policyholders
- Proposals for alternative work sites in case of office closures
- Methodology to determine the size of their adjuster force
The catastrophe response plan wouldn’t be part of the public record, but would be subject to the commissioner’s review in addition to carrier capital reports, so the commissioner could determine if insurer processes are sufficient.
Regulation in response to climate change
As hurricane seasons worsen and buzzwords like climate resilience have their day, insurance carriers, agencies, and MGAs will have to take a look at how their internal practices and innovations can tackle what is a global issue.
But irrespective of a global climate view, the impacts of climate change are palpable today – this proposed insurance regulatory package is hardly an isolated thing. Instead, it reflects the shifting priorities of a state that increasingly weathers a stormy season (no pun intended but the meteorological symmetry just happens here).
While you can’t always predict the future in the United States, and we don’t know what chance this package has of passing both the Louisiana House and Senate, not to mention the governor, you can bet we’ll see similar proposals roll out in other storm-swept states.
Keep in mind, these Louisiana proposals are only some of the insurance regulations that have been proposed in one state. Remember, there are actually 49 other states to watch, plus the territories and D.C.
If you’re an insurance carrier looking to get ahead of the regulation, see how AgentSync can help you in your catastrophe plan by giving you insights into your existing adjuster force and putting some speed in the onboarding and licensing process for new adjusters.