Commissioner of Insurance Jim Donelon was in Shreveport May 19, two and one-half weeks before the Louisiana Legislature adjourned, to talk to the Independent Insurance Agents of Shreveport Bossier about current events at the department, the session and the hurricane response after two years of Category 5 hurricanes.

Louisiana Insurance Commissioner Jim Donelon

In recounting past hurricanes, Donelon said Katrina in August 2005 ultimately cost private insurers $23 billion (for Louisiana losses) and the National Flood Insurance Program another $16 billion. Katrina came ashore at 115 mph, a Category 3 storm.

Fast forward 15 years to Laura, which came ashore Aug. 27, 2020, and Ida, which made landfall Aug. 29, 2021, both with 150 mph winds. According to Donelon, Laura and Ida are the number two and three strongest hurricanes ever (as measured by wind speed). The cost to the private insurance market for Laura stands at $9.1 billion and Ida at $12.1 billion.

While the state has been hit by powerful and devastating storms in the last two years, “It does not have to always be that way,” Donelon said. He noted that there have been 15 years of relative calm in the Pelican State.

Louisiana is the state most often visited by hurricanes, according to Donelon. “We are the bull’s eye between the Sabine and Pearl rivers,” he said.

“We have learned a lot of lessons and have lost very few lives since Katrina,” he pointed out. Of the two dozen lives lost for Laura, half were by electrocution after the storm passed, and most of the lives lost from Ida were carbon monoxide poisoning from misuse of generators. Both storms were essentially dry, he said.

“We can manage this, and we are,” Donelon told the agents. “You do not subsidize the south Louisiana coastal exposure,” he told the insurance professionals from northwest Louisiana. He said that 40 percent of insurance property premium below I-10 and I-12 is for catastrophe exposure, and 20 percent above I-10 and I-12.

The property market at large is “certainly stressed,” Donelon said. “If not for the second year (of hurricanes) our market would have survived and been fine.”

Still, he believes the state will recover quicker than from Katrina and Rita in 2005. That is because those hurricanes happened when the state’s insurance market was already dysfunctional.

Gulfstream Property and Casualty Insurance Company went “down immediately” in Florida and affected Louisiana by 9,000 policies.

The first three failed Louisiana insurance companies (including Access Home Insurance Company and State National Fire Insurance Company) left behind 55,000 policies, Donelon said.

SafePoint Insurance took all 55,000 policies on the same terms and conditions as the failed insurers had, the same agents and with the three-year protection status, according to Donelon.

He said the receiver told him that out of 55,000 claims, there were only 200 lawsuits.

The insurance industry “looks at Louisiana as a dangerous place to do business,” he said.

Donelon opined that competition probably resulted in some artificially low rates. The Louisiana market attracted about 30 regional carriers after Katrina. “Some of those companies truly were underpriced.”

Lighthouse Property Insurance Company was approved for a 43 percent rate increase, which went into effect shortly before the company was placed in supervision.

Even with a 43 percent rate increase, Donelon said, LDI’s actuary told him the increase would put Lighthouse “in the middle of the pack of the top 20” homeowners writers in the state. According to Donelon the company failed because it “didn’t buy enough reinsurance.” As it turned out, Lighthouse was 43 percent underfunded.

According to Donelon, Lighthouse left behind 30,000 policies, of which 14,000 will be handed off to another insurer and 16,000 will be canceled. He said the receiver had to buy one month of reinsurance for the 16,000 policies.

Subsequent to Donelon’s speech, the judge in the 19th Judicial District Court in Baton Rouge signed a liquidation order for Lighthouse Excalibur Insurance Company on May 23. Lighthouse Excalibur policies will cancel on June 22. And the receiver bought reinsurance with limits of $50 million excess of $5 million, and $25 million excess of $55 million, for total reinsurance cover of $80 million excess of $5 million retention to cover policies from May 23 to June 22, but an additional week of reinsurance was purchased so policyholders would have until the end of month to find coverage.

Risk Rating 2.0

Donelon described the NFIP’s Risk Rating 2.0 as hugely “threatening to our state.” According to Donelon, the Trump administration brought out RR 2.0, but dropped implementing it. However, the Biden administration is implementing the new flood insurance rate structure. “We know that thousands of policies are priced so high as to make the property worthless.”

For the most part, he said, Congress is understanding and supportive.

Donelon said his own flood insurance premium decreased because of the “$15 billion spent in updating the levees.”

As it stands now, Donelon said the “big fight in reauthorizing NFIP is not over whether RR 2.0 stays, but over what the cap on increases will be.”

Auto insurance

According to Donelon, at the beginning of the 2022 session, the Legislature was focused on automobile insurance and a bill that would require drivers to purchase UM/UIM coverage.

House Bill 951 by Rep. Edmond Jordan, D-Baton Rouge, would have required automobile liability insurance policies to include uninsured motorist coverage, according to the Legislature’s website.

Donelon credited Rep. Alan Seabaugh, R-Shreveport, with “fighting off the trial lawyers” to defeat the bill.

Donelon explained that 40 percent of the state’s automobile insureds buy minimum limits of liability and having to buy UM/UIM coverage would add 35 percent to their premium.

Turning to commercial auto coverage, Donelon said, “School bus drivers can’t afford to operate” because their insurance is so expensive.

He suggested that something is being done to provide some relief from unaffordable/unavailable commercial auto insurance. A self-insured fund for truckers has been created, he said.

Senate Bill 437 by Sen. Robert Mills, R-Minden, authorizes the creation of Louisiana Timber and Agricultural Transportation Group Self-Insurance Funds, according to the Louisiana State Legislature website. The bill has been sent to the governor.

Donelon explained that the Louisiana Automobile Insurance Plan, the assigned risk plan, in the 1990s had thousands of insureds, and later had hundreds on a seasonal basis, primarily sugar cane haulers.

2022 legislative session

Donelon indicated he was most concerned about the bill in LDI’s package that would raise capital and surplus requirements to $10 million for insurance companies authorized to write homeowners’ insurance. (House Bill 866 by Larry Frieman, R-Abita Springs, was signed by the governor and became Act 60.)

Donelon said he wants those companies “to have more skin in the game.”

Donelon’s assessment of the 2022 session is that “we are much better off” than last year. There was a lot of fear going into the 2022 session, but the fear was based on the industry’s experience last year after Laura, Delta and Zeta. “They were on fire last year,” he said, and “the media was fueled by the trial lawyers.”

He expressed optimism that the 2022 session would be successful for the insurance sector.