Insurance Commissioner Jim Donelon’s request to expedite funding for an incentive program was denied by state lawmakers this week, leaving the effort in limbo until the start of the next legislative session in April.
Donelon had urged lawmakers to allow him to use $15 million in tax revenue from remaining premiums the Insurance Department collects to launch the Insure Louisiana incentive program. The effort was first launched in the years following Hurricane Katrina to attract property insurers to the state and remove them from the listings of Louisiana Citizens Property Insurance Co., the insurer of last resort managed by the state.
Donelon warned earlier this week that if Citizens did not start trimming its bloated list of insured – which now stands at 129,000 – it will be forced to spend big on reinsurance in the spring when these contracts are usually negotiated.
State lawmakers agreed to relaunch the incentive program earlier this year, but left it unfunded.
Since the Louisiana Department of Insurance collects more than $1 billion each year in premium taxes to fund its operations, Donelon wanted to use the remaining revenue that normally goes to the state’s general fund to pay for incentives.
But lawmakers at the revenue estimate conference, which met on Thursday, were skeptical of his preferred approach. They suggested that Donelon faced more hurdles to restarting the program beyond funding.
“We’re generally hesitant in government to put the cart before the horse,” Senate Speaker Page Cortez R-Lafayette said. “It’s always better to make sure everything is ready and then to finance it. »
Cortez said the state is in a good position to fund the incentive program, but noted that the rules that will govern it have not yet been approved.
“Remember that there is oversight on the part of the Legislative Assembly in the rule-making process, which may delay the rules coming into effect,” Cortez said. “I think your late February was the best-case scenario; it could be April or May before the rules make it to final publication.
Donelon, who floated the idea of convening a special session to consider incentives, was sent back to the drawing board. In a prepared statement, the commissioner said he would consult with Senate Insurance Committee Chairman Kirk Talbot, R-River Ridge and House Insurance Committee Chairman Mike Huval, R-Breaux Bridge, to determine whether an extraordinary session is the most efficient way.
“I understand the revenue estimate conference’s reluctance to facilitate funding for the Insure Louisiana incentive program at the (Thursday) meeting, as this would have been a new approach to mid-year budget changes that could have unintended consequences in other situations down the road,” Donelon said.
Donelon tried to stop a spiraling insurance crisis that is only expected to worsen after the bankruptcy of nearly a dozen insurers in the last year. He told lawmakers that the upheaval in the property insurance market was largely due to the cost of reinsurance – the insurance purchased by insurers.
There is less incentive to underwrite the risk of potential global catastrophes in the secondary insurance market abroad. Small insurers therefore find it more difficult to find reinsurance to cover their potential losses. And reinsurers are charging them more money.
This trend is significant for hurricane-prone Louisiana, and even more so for Louisiana citizens. After about two dozen insurers failed or ceased writing policies in the state, home and business owners were forced to flee to citizens, which in many cases was the only remaining option.
The migration after the collapse of Lighthouse Excalibur Insurance Co. and its subsidiary Lighthouse Property Insurance Corp. Then Southern Fidelity Insurance Co. was also declared insolvent. Together, they sent more than 60,000 policyholders to Citizens.
Meanwhile, the number of citizen policies has more than tripled since 2020, rising to more than 129,000 this year. Donelon said the organization purchased enough reinsurance last year to cover around 65,000 policies, but with the growth in roles the cost will be significantly higher in 2023.
Citizens were granted a 63% rate increase this year to offset rising reinsurance costs. Donelon said another big rate hike could be expected if the state is unable to dump many of these policies.