La. Legislature takes wrong turn on rates
The Louisiana Legislature wrapped up their 2012 session late June 4 by passing S.B. 204 , a bill that would reinstate a partial suspension of the requirement that state-run Louisiana Citizens Property Insurance Corp. must charge rates at least 10% more than those in the private market.
Sponsored by state Sen. Dan Morrish, R-Jennings, the bill applies to wind-and-hail only policies in St. Mary, Calcasieu, Cameron, Vermilion, Iberia, St. Tammany, Orleans, Jefferson, St. Bernard, Plaquemines, Terrebonne and Lafourche parishes. If signed by Gov. Bobby Jindal, the suspension would be in effect through Aug. 15, 2015.
The bill marks a wrong turn for state lawmakers at precisely the moment Louisiana was beginning to make progress in shrinking Citizens, and it risks turning the quasi-public insurer into a carbon copy of its namesake in Florida.
The 10% requirement had been waived in coastal areas after the record storm season of 2005, with the exemption finally expiring in August of last year. Meanwhile, after reaching a peak of 164,000 residential policies and 10,000 commercial policies as of 2008, Citizens was down to about 105,000 home policies and 5,500 business policies earlier this year.
But enrollment in windstorm-only policies offered in coastal parishes, which largely cover hurricane risks, has been growing again. Insurance Commissioner Jim Donelon estimated last week that Citizens now has 35,000 wind-only policies, up 9,000 from a year ago.
Partially as a response to this growth, the Louisiana Citizens board has approved a 58% average rate increase for wind-only policies, although rates in some areas would have to rise by as much as 200%. Because few private insurers offer wind-only policies in the affected areas, the rates are based on the amounts that State Farm, Allstate, Louisiana Farm Bureau and Travelers charge for the hurricane portion of their homeowners coverage.
In addition to S.B. 204, the Legislature also approved H.C.R. 189, urging Donelon to require Citizens phase-in the 2012 rate increases over a four-year period. Donelon has said that state law requires Citizens and other state insurers to adjust their rates every year.
“I guess like many folks, they think I have czar-like powers over insurance companies and state entities like Citizens … and I don’t,” Donelon said Friday. “I don’t have the power to do what the (state) representatives are requesting.”
The rate increases took effect June 1, the first day of hurricane season, for new and renewing homeowners. But if S.B. 204 becomes law, the legislation will force Citizens to revisit its rate structure, including offering rebates to those who already have been billed the new rates.
Morrish’s bill is a response not only to those rate hikes, but to a $110 million judgment that currently hangs over the company. Other provisions of the bill would exempt Louisiana Citizens (and several other state entities) from being required to post litigation bonds in judicial proceedings.
The judgment is related to a class action lawsuit originally filed in October 2005 alleging Citizens failed to begin adjusting claims from Hurricane Katrina and Rita within the 30-day period required by law. In 2009, the 24th Judicial District Court in Jefferson Parish found for the plaintiffs and ordered Citizens to pay $5,000 to each of the more than 18,500 policyholders, or a total of $92.9 million. The total has since grown to $110 million, as it has been accruing legal interest of $10,200 each day for three years.
Citizens has reportedly spent nearly $1.6 million over the past eight years fighting the suit, more than a third of it coming this year as the company desperately tried to block court orders that it hand over more than $100 million in judgments.
The case, Louisiana Citizens Property Insurance Corp. v. Oubre, has been appealed to the U.S. Supreme Court, with Citizens arguing that, as a state agency, its assets can’t be seized without the agreement of the board or approval of the state Legislature. Should the high court agree to hear the case, it likely would be to test the degree to which federal due process protections apply in state court class actions.
Citizens’ board has said that it has about $140 million in cash resources set aside, which would just about cover $110 million for the original judgment and an additional $30 million to settle with another 6,500 policyholders who have similar outstanding claims.
But that would leave the company with little-to-no buffer for storm claims, which contributes to making S.B. 204 particularly ill-advised. State law does allows Citizens to assess private property insurers if it does not have the resources to pay claims. But the property insurers pass the fee along to policyholders who, in turn, receive tax credits out of the state’s general fund for the assessments. Ultimately, then, Louisiana taxpayers are the ones who would have to pay the company’s claims.
On the bright side, Louisiana Citizens did boost its claims-paying resources earlier this year when it turned to the capital markets to issue its first-ever catastrophe bond, a deal known as Pelican Re. Originally marketed as a $100 million transaction, it later grew to $125 million of reinsurance coverage, which would kick in should the company experiences a loss of more than $200 million.
More recently, Citizens secured approval from the state Bond Commission for a $75 million line of credit, at 6% interest, from Regions Bank, replacing another line of credit that expired May 30.
