Louisiana Tackles Homeowners 'Crisis'If you are looking to purchase homeownersinsurance, Louisiana is probably one of the last places you wouldwant to be.

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At $714, the Bayou State's average homeowners premium is thesecond-highest in the country behind Texas, and nearly 50 percenthigher than the national average of $487, according to figures fromthe National Association of Insurance Commissioners. Further,carriers have also been leaving the state in droves, with thenumber of companies actively writing homeowners insurance in thestate dwindling to below 20 from more than 100 during the pastdecade.

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But there are efforts now under way to turn the tide, with newlegislation in the works and local business groups joining forcesto lobby state lawmakers.

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According to Robert Wooley, commissioner of insurance forLouisiana, there are two reasons why his state is suffering from ahomeowners 'crisis': location and lack of competition. And whilethere is nothing much he can do about the state's exposure tohurricanes and storms, “we can change the way we do business in ourstate,” he told National Underwriter. “We have a crisis inhomeowners right now. We don't have enough companies writing in ourstate. Part of the reason is our regulatory system.”

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Another sign of Louisiana's insurance troubles comes from itshigh-risk pool, the market of last resort, which has become the“market of first resort” because the state no longer has enoughcompanies writing.

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“We are the fourth-largest writer of homeowners insurance in thestate right now. We have gone from about 14,000 policies in thehigh-risk pool in 1992 to over 100,000,” he noted. “We have agentswho have been in business for 60 years who, for the first time inthe entire history of their agencies, do not have a homeownerscompany to write for. The only company they write for is thehigh-risk pool.”

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An extensive insurer poll also offered state regulators furtherinsights into Louisiana's crisis. Last year, the insurancedepartment sent out a survey to every company that has writtenhomeowners insurance in Louisiana during the past decade and askedthem to anonymously identify major problems with writing insurancein the state. And what the department found has set the course ofreform since then.

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“The survey asked companies why they had stopped writing, andwhat it would take for them to start writing again,” Mr. Wooleysaid. “The number one response was to change our ratingsystem.”

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To remedy this problem, a bill was passed last month toimplement a “flex-band” system, similar to what South Carolinapassed in the late 1990s, and Louisiana Gov. Mike Foster hasindicated that he will let it become law beginning next year, Mr.Wooley noted.

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This system, he explained, will allow insurers to raise or lowerrates by up to 10 percent in a year without going through theLouisiana Insurance Rating Commission for approval, as they arecurrently required to do.

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Under this new law, insurers would simply file new rates withthe insurance department 30 days before they take effect, andcarriers would just notify their insureds of the change within thatsame 30-day period. Mr. Wooley added that the rating commission'sactuarial staff would still review the adjustments to make surethat they are reasonable, and rate changes of more than 10 percentwould still require approval from the insurance department and therating commission.

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“Basically, what we hope the flex-band bill will do is that itwill encourage companies to come to Louisiana, and that competitiveenvironment should help stabilize our market and hopefully bringlower prices to our consumers,” Mr. Wooley suggested.

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Additionally, Mr. Wooley observed that local business lobbyinggroups such as the Coalition to Insure Louisiana are now playing asignificant role in regulatory reform efforts. “I think Coalitionto Insure Louisiana has been effective. It brought togetherbusiness people, realtors and others who have been hurt by thehomeowners crisis to explain to the legislature why we needreforms,” Mr. Wooley said.

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And while the insurance department and the coalition havedifferent agendas, he acknowledged that such business alliances canbe useful in getting lawmakers' attention. “When business groupscome together and say, 'Look, this is hurting us,' I think thathelps in the educational process for lawmakers,” he said.

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Greg LaCost, counsel at the Des Plaines, Ill.-based NationalAssociation of Independent Insurers, one of the founding members ofthe Coalition to Insure Louisiana, noted that this type of alliancecan also work well in other states to create a moreinsurer-friendly environment.

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“We are also a member of the New Jersey Coalition, which hasbeen successful. There is another one in Texas that we are part of,and that has also done well,” Mr. LaCost noted. “The Louisianacoalition's reform efforts are going well. The biggest bill outthere, of course, is the flex-band bill. It is a good step–it's astep that will bring competition back to Louisiana.”

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Mr. LaCost explained: “In 1997, South Carolina passed a flexband of 7 percent. At that point, South Carolina's market for autowas horrible. They were down to 20 carriers that were activelywriting insurance in the state,” he said. But after the flex bandwent into effect in 1999, more than 100 new carriers have movedinto that market and are now actively writing insurance, accordingto NAII.

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Auto rates have gone down in South Carolina since then as well,Mr. LaCost observed, adding that this also helped homeownersinsurance because companies started doing both homeowners and autowhen they saw how good a market South Carolina was becoming. “Andthe residual market, the involuntary market that skyrocketed whenthe market was not working well, has plummeted in South Carolina,”he said.

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Mr. LaCost predicted that the flex-band law would have a similarimpact on Louisiana and resolve a good portion of insuranceproblems the state is facing.

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Like Mr. Wooley, Mr. LaCost noted that even with flex-ratingrules in place, the rating commission would still be there for anyrate changes over 10 percent. “Let's say you have a big hurricanethat goes through Louisiana and you have to get an increase of,say, 12 percent. You would still have to go in front of theLouisiana Insurance Rating Commission,” Mr. LaCost said.

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He charged that the rating commission has made it very difficultfor companies to do business in Louisiana, and therefore, “at somepoint, it should be phased out. Louisiana is one of the last statesto have an insurance rating commission.”

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But Mr. Wooley is taking a more cautious approach, warning thatdissolving the commission soon may be premature. “I want to seewhat this flex-band system does–I want to have that opportunity.Plus, I don't want to make too drastic a change with our fragilemarket,” he said.

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Another area of disagreement between the insurance departmentand the Coalition to Insure Louisiana involves tort reform andlowering the state's monetary threshold for obtaining a jurytrial.

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Mr. LaCost noted that, in Louisiana, a jury would be allowedonly if each individual claim in pleadings by plaintiffs' lawyersis more than $50,000. So for businesses that get sued byindividuals for up to an amount of $50,000, their cases would havehave to go in front of a judge instead of a jury, Mr. LaCost said.And since the $50,000 threshold refers to each individual claimwithin a case, defendants facing a judge could still get sockedwith big damages in the aggregate amount if there are multipleplaintiffs in a suit. Furthermore, judges can also award more than$50,000 per plaintiff in these cases if they feel such decisionsare justified.

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He noted that many insurers now feel they would have a betterchance of prevailing if more of their cases were tried in front ofa jury instead of a judge. One reason that some judges may befavoring plaintiffs, he speculated, is that since all Louisianajudges are elected and trial lawyers are important campaigncontributors, some judges end up getting influenced in theirdecisions.

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“The feeling is that in our state, where judges are elected,there is a lot of political pressure on judges to beplaintiffs-oriented,” added Jeff Albright, executive vice presidentat Independent Insurance Agents & Brokers of Louisiana andspokesperson for the Coalition to Insure Louisiana. “We believesome judges do favor plaintiffs, and we feel juries will be moreconservative.”

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Mr. LaCost said there is currently a bill that the Louisianacoalition is pushing to lower the threshold for jury trials. “Weare looking to reduce the $50,000 threshold in Louisiana, which isthe highest in the country,” he said. “The next highest in thecountry is only $15,000, in New Jersey. And 35 states have nothreshold whatsoever. So that's a big concern for us inLouisiana–we would like to see that changed.”

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But the insurance department is taking a different view on thissubject. Mr. Wooley suggested that, while there has been a lot oftort reform in Louisiana in the past few years, “I haven't seen anyreal impact on rates to this point.”


Reproduced from National Underwriter Edition, June 23, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.


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