Louisiana Commissioner of Insurance Jim Donelon and the chairmen of the state’s House and Senate insurance committees presented to the public on March 10 their proposed solutions designed to deal with the challenges facing the insurance industry subsequent to the disastrous 2020 and 2021 hurricane seasons.
Donelon, Sen. Kirk Talbot, R-River Ridge, who chairs the Senate Insurance Committee, and Rep. Mike Huval, R-Breaux Bridge, who chairs the House Insurance Committee, each presented two bills during the afternoon press conference at the Department of Insurance.
Referenced as the Catastrophe Reform Package, their proposal consists of six bills to be considered separately by the Louisiana Legislature during the Regular Session which convened March 14. The four Senate bills are assigned to the Senate Insurance Committee and the two House bills to the House Insurance Committee.
In introducing two of the bills, Donelon remarked that, even though the insurance industry remains strong, at this point, LDI’s top priority is being sure that the citizens of Louisiana are protected, especially in the aftermath of a hurricane.
In September, Donelon reminded his audience, he issued Directive 218 in the aftermath of Hurricane Ida, requiring insurers to pay claims for loss of use by policyholders who evacuated but were not under a mandatory or even a voluntary evacuation order.
Directive 218 followed a bulletin issued requesting insurers to voluntarily pay claims for prohibited use even if parishes did not issue a formal mandatory evacuation order. State Farm declined to comply with the bulletin or the directive. Instead, State Farm stuck to its policy language, and the issue landed in district court after an administrative law hearing.
Additional Living Expense bill
Donelon said that Senate Bill 134, the Additional Living Expense bill, sponsored by Talbot, is his (Donelon’s) contribution to the six-bill package. The proposed legislation mandates coverage of additional living expense (evacuation expenses) for losses that arise due to a catastrophic event when a civil authority issues an evacuation order or recommendation during a state of disaster or emergency.
“When preparing for a storm and considering what is best for their families, our citizens should not have to worry about waiting for a local evacuation to make sure they will receive coverage for their additional living expenses,” Donelon said.
The Additional Living Expense coverage mandate applies to areas within the state of emergency declaration if a civil authority prohibits insureds from using their residential premises and during that time, direct damage to a neighboring premises results from a covered peril, according to the bill’s text. The prohibited use coverage shall be provided in the policy.
According to SB 134, the requirement that a civil authority prohibits use is satisfied if either:
-A civil authority issues an order of evacuation for the area in which the dwelling is located as a result of a peril covered by the policy, or
-A civil authority declares through public safety announcements that the area in which the dwelling is located should be evacuated as a result of a peril covered by the policy.
Per SB 134, insurers shall interpret, in globo, all actions of a civil authority, whether or not formal orders of evacuation were issued.
If passed and signed by the governor, the proposed law becomes effective on Jan. 1, 2023.
Minimum Capital and Surplus bill
Donelon presented the second bill of the package, the Minimum Capital and Surplus Requirement bill, sponsored by Sen. Joseph Bouie Jr., D-New Orleans, which raises the capital and surplus requirements for domestic insurers authorized to write homeowners or fire and allied lines insurance from the current $3 million to $5 million by Dec. 31, 2026, and $10 million by Dec. 31, 2031.
Further, the bill would require insurers who apply for a certificate of authority on or after Sept. 1, 2022, which includes homeowners insurance or fire and allied lines, to have capital and surplus of $10 million.
Donelon reminded his audience that three insurers failed after hurricanes Laura, Delta, Zeta and Ida. Fortunately, he said, “We were able to quickly issue a request for proposals and locate an insurer, SafePoint, which was able to take over all of the policies, 50,000 total, from those three failed companies.”
He explained that capital and surplus is the financial cushion insurance companies must have in cash on hand to conduct business in Louisiana.
“We are supporting this legislation to strengthen insurer solvency in the face of increasing hurricane activity and in light of these three failed companies,” Donelon said.
The purpose is to strengthen these small regional companies, which the state has come to rely on in the aftermath of hurricanes Katrina and Rita in 2005, according to Donelon, when the major carriers withdrew from coastal exposure, and imposed large named storm deductibles, particularly in Louisiana, because of Louisiana’s three-year rule that does not allow companies to nonrenew policies that are three years old and older.
Essentially the law will require small regulated carriers to “have more skin in the game,” Donelon said. He expects they will purchase more reinsurance than in the past.
If passed and signed by the governor, the Minimum Capital and Surplus bill becomes effective on Aug. 1, 2022.
Three adjuster rule
Talbot told those assembled for the press conference, in person and virtually, that a common problem among his constituents after Hurricane Ida was adjuster churning. Claimants find themselves on the third or fourth adjuster and have to start the whole process over again.
To combat that problem, Talbot sponsored legislation (SB 198) that would require one adjuster/contact person and a status report of the personal or commercial residential claim.
For an insurance claim that arises out of a state of emergency or declared disaster and the insurer within a six-month period assigns a third or subsequent claims adjuster to be primarily responsible for the claim, the bill states that the insurer shall provide the insured in a timely manner all of the following:
-A written status report that shall include a summary of any decisions or actions related to the disposition of the claim; the dollar amount of coverage for losses; the undisputed dollar amount of losses; if the insurer intends to retain or consult design or construction professionals, and all items of dispute.
-A primary contact for the insured.
-Two or more direct means of communication with the primary contact.
The proposed legislation goes on to define “primary contact” as an adjuster or team employed as a member or members of the insurer’s staff.
Once assigned, the primary contact shall remain assigned to the insured’s claim until the insurer closes the claim or a party files a lawsuit on the claim.
The designation of a primary contact does not preclude other claims personnel, vendors or professionals from working on the claim, according to the proposed legislation.
If the insured needs more information, the insurer shall ensure that the primary contact refers and transfers the insured to the appropriate supervisor.
“While we understand that it is difficult for insurers to find enough adjusters and other professionals to deal with the influx of claims following a catastrophic event like Hurricane Ida, policyholders ought to have a clear understanding of the claims process without having to worry about who they should reach out to with questions,” Talbot said. He believes the three-adjuster rule will help policyholders deal with the adjuster turnover problem, which was exacerbated by previous storms and the pandemic.
If passed, SB 198 becomes effective Jan. 1, 2023.
The second bill Talbot presented, the Policyholder Nonrenewal Protection bill, SB 162, provides certain requirements for the cancellation or nonrenewal of property insurance policies if the property is damaged by a named storm or windstorm.
“Policyholders in the middle of a disaster should not have to worry about whether or not their insurance company is going to nonrenew them,” Talbot said. He believes the bill will provide policyholders with peace of mind to focus on the immediate challenge of repairing their home instead of worrying about whether they are going to be canceled or nonrenewed.
Under SB 162, if the governor declares a state of emergency for a hurricane or windstorm, an insurer shall not cancel or nonrenew a property insurance policy covering damaged property located in the area subject to the declaration until 90 days after the property has been repaired.
According to the bill, a structure is considered to be repaired when the structure is substantially completed and restored to the extent that the structure is insurable under a similar property insurance policy offered by another insurer that writes in Louisiana, except Louisiana Citizens Property Insurance Corporation.
If an insurer elects to cancel or nonrenew a property policy, the insurer shall provide the insured at least a 90-day notice.
An insurer may cancel or nonrenew a property insurance policy prior to the property being repaired if the cancellation or nonrenewal is based on either:
-A 10-day written notice for nonpayment of premium;
-A 30-day written notice based on either a material misrepresentation or fraud related to the claim, the insured unreasonably caused a delay in repairs to the dwelling or the insurer has paid the policy limits, or
-A written request from the insured.
The commissioner may promulgate rules and issue orders as may be necessary to implement provisions of SB 162.
If passed, the legislation becomes effective Jan. 1, 2023.
Louisiana Fortify Homes program
Driving down the highway going through Chauvin to Cocodrie after Hurricane Ida, Huval said he noticed that some buildings were barely damaged, while some were completely destroyed, and they were standing next to each other. That prompted him to sponsor HB 612, which establishes the Louisiana Fortify Homes Program within the Department of Insurance. The program would require people to use stronger building materials and methods when building or modifying their homes, Huval explained.
Under this program Louisiana residents can apply for grants to retrofit their roofs using methods that meet or exceed fortified home standards of the Insurance Institute for Business and Home Safety, he said.
While homeowners will have to meet some eligibility requirements and pay for permits, inspections and similar fees, the grants will cover the additional cost to retrofit their homes to the fortified home roof standard in most cases.
House Bill 612 provides that, as administrator of the program, the commissioner may make financial grants to retrofit insurable property and shall promulgate rules governing eligibility requirements for grants and the administration of the program.
In order to receive a grant, according to the bill, the grantee shall obtain all permits required by law or ordinance for construction; arrange and pay for inspections; comply with applicable codes, and maintain records as required by Louisiana law and the terms of the grant.
The name of the recipient of a grant, the amount of the grant and the municipal address of the retrofitted insurable property shall be public record, the bill states.
The bill stipulates that funds for the Louisiana Fortify Homes Program shall be appropriated from revenue generated by the department, not to exceed $10 million in any fiscal year. The funds will be deposited with the state treasurer and credited to the Louisiana Fortify Homes Fund, which is created by the bill within the state treasury.
Funds shall be used in amounts appropriated by the legislature to cover the grants. Funds not spent in a fiscal year will remain in the fund for distribution in subsequent years.
The bill makes clear that it does not create an entitlement for property owners to receive funding to inspect or retrofit residential property nor does it create an obligation for the state to appropriate funding to inspect or retrofit residential property.
Huval said he believes the grant program will help a lot of folks resist storm damage in the short term while potentially reducing residential property insurance costs for the entire state in the longer term. He hopes it will also encourage more people to build to the fortified standard moving forward.
If the bill passes, the Louisiana Fortify Homes Program becomes effective Jan. 1, 2023.
Catastrophe Response Plans
Another problem Huval saw is the lack of response by many insurance companies.
To address that issue, Huval and Talbot authored HB 280, the Catastrophe Response Plans Improvements bill, which requires insurers to maintain a written catastrophe response plan. The bill specifies what is to be included in the response plan and says the plans shall be deemed confidential, proprietary information subject to the Uniform Trade Secrets Act and not subject to public records disclosures.
Under HB 280, among information the insurers’ written plans shall include is:
-Emergency contact information of key or essential personnel.
-Appropriate contact information of claims personnel.
-Alternate office locations and work sites likely to be used in the event of a catastrophe;
-Procedures to address the backup, storage, retrieval and security of records and data necessary to adjust claims; the processing of claims; relevant training of staff; communication with agents in the event of mail delivery or other communication system disruption; the distribution of catastrophe claim information to policyholders.
-The methodology for determining the approximate number of field adjusters, desk adjusters and other administrative personnel necessary to respond to the disaster; the process through which the insurer will provide claims and administrative personnel to service policyholder needs, and the process through which the insurer will provide logistical support to claims and administrative personnel in the area affected by the catastrophe.
Insurers are to file the written catastrophe response plans with the department by June 1, 2023, and update as necessary.
According to Huval, the department will determine if the plans are adequate. The commissioner of insurance has the authority to take regulatory action against entities that do not comply with the law.
Question and answer
In response to a question at the press conference, Donelon told the audience that the Catastrophe Response Package of bills does not have a proposal to increase penalties on insurance companies and that he has not had a chance to review those proposals by others. Donelon cautioned that the Florida model is not to be replicated. Their market is in “absolute disarray,” he said.
Relative to complaints alleging that companies used delay tactics in adjusting claims, Donelon expects the three-adjuster rule to address that, the most often heard complaint among LDI’s 4,000 complaints, and rein in the practice of multiple adjusters.
He said the hold ups may not be due to delay tactics, but due to hiring difficulty that all businesses experienced during the pandemic, sometimes resulting in hiring incompetent workers. Donelon couldn’t say whether the situation unfolded because of intentional delay or lack of available competent adjuster resources.