Louisiana officials are dealing with a flood of complaints from policyholders about storm damage claims and rising premiums, all while attempting to limit the number of insurers leaving the market or folding.
All of these issues were raised Thursday at the Capitol during a Legislative Auditor Advisory Council hearing, during which lawmakers pressed the Louisiana Department of Insurance for more information. Legislative Auditor Mike Waguespack and his staff reviewed and updated reports on insurance department complaints, actions taken in response, and the financial condition of the state’s residential property insurance market.
According to audit data, property insurance complaints filed with the state insurance department skyrocketed following major hurricanes in 2020 and 2021. After filing approximately 450 complaints from 2017 to 2019, policyholders filed 1,350 complaints in 2020 and a whopping 5,200 last year.
According to auditors, nearly all of the complaints, 98%, involved damage claims, and the insurance department resolved nearly two-thirds of them in favor of the policyholder.
Despite the fact that the majority of resolutions benefit consumers, advisory council chairman Sen. Jay Luneau, D-Alexandria, questioned whether the insurance department is doing enough to force insurers to do the right thing by policyholders from the start.
The most common complaints concerned communication issues with claims adjusters, with homeowners frequently unable to locate them after an initial evaluation. According to the audit, the vast majority of adjusters working in Louisiana, particularly after a hurricane, are from out of state. Some states require out-of-state adjusters to be licensed, but Louisiana recognizes licensure from other states following a disaster to get more adjusters out in the field.
Luneau echoed Grant Parish Sheriff Steven McCain’s claim that he worked with 23 different adjusters from 21 different states on his claim.
Insurance fines are being challenged.
Lawmakers and insurance department officials struggled to agree on the amount of fines levied against insurers for substantiated complaints. Fines begin at $50 and can reach $350,000.
According to Nina Hunter, deputy insurance commissioner, fines are only imposed after the department has made multiple attempts to compel an insurance company to correct claim issues.
“When you’ve worked with them, it makes this number even more staggering,” Luneau said. Despite this, 64% of complaints are found to be valid and should have been addressed by insurance companies.”
According to the legislative auditor, the department proposed fines totaling $764,000 in 2021, but only nine fines totaling $7,750 were collected. In light of thousands of complaints following a series of major hurricanes, lawmakers questioned the low collection total.
More fines will be issued soon, according to David Caldwell, executive counsel for the insurance department. He did not specify how much money the state expects to collect, but he did say that insurance companies can appeal the fines to the department.
Luneau reminded the council that the amounts being discussed do not include what insurance companies are required to pay when claimants choose to go to court rather than file a complaint with the insurance department.
Citizens more than triples policy load
Since July 2021, the insolvency of 11 insurance companies has required Louisiana Citizens Property Insurance Corp., the state-created insurer of last resort, to absorb those property owners and more than triple the number of policies it carries.
Citizens held approximately 35,000 policies worth $6.7 billion at the start of 2021. According to the audit report, the policy number is now 112,000 for $33.3 billion in property.
Auditors discussed the possibility of another disaster draining Citizens’ resources in the near future. That scenario last occurred after Hurricane Katrina in 2005, when Citizens was forced to assess all Louisiana homeowners’ policyholders in order to replenish its funds. These payments will be made until 2026.
Insure Louisiana, a post-Katrina incentive program created by the legislature, allowed the state to offer grants ranging from $2 million to $10 million in order to attract new property insurance providers. Three of the five new companies that began writing policies are still in operation in the state, while one went bankrupt. The other was bought out by Allstate, which no longer writes new property insurance policies in hurricane-prone areas.
The legislative auditor, Waguespack, stated that the legislature has the option of reviving Insure Louisiana and continuing to provide incentives. According to him, the money could also be put into a catastrophe fund to assist policy writers in obtaining reinsurance.
Reinsurance, the secondary coverage obtained by insurance companies to cover their risks, is becoming increasingly expensive. Six of the 11 insurance companies writing Louisiana policies that failed, according to auditors, had insufficient reinsurance coverage.
Because market prices were unaffordable, Florida’s version of Citizens Property Insurance Corp. went into the 2022 hurricane season with only one-third of its policies reinsured. It had already planned to raise policyholder premiums before Hurricane Ian hit, and Floridians can expect more hikes.
Another option for Louisiana lawmakers, according to Waguespack, is to provide money directly to homeowners to fortify their roofs. The most severe damage occurs when houses lose their roofs, and investing in methods to keep them on could help lower insurance costs, according to him.
Legislators have already raised the bar for companies that want to do business in Louisiana to avoid future bankruptcies. A law passed earlier this year requires property insurance companies to have $10 million in capital and surplus on hand before issuing new policies.