Striving for Balance in Louisiana as Reform Efforts Continue

Insurance and tort reform measures passed by the Louisiana Legislature in 2003, along with efforts by the insurance department and two major insurance agents’ associations to get the word out about the state’s new policies, by most accounts have been successful in stimulating a renewed interest among insurers in doing business in the state. The task now is to keep the momentum going, to protect the strides that have been made and to make sure the interests of consumers and insurers are balanced in the process.

Although the drive to spread the news about changes in Louisiana’s insurance climate has aroused the interest of new companies, it has been equally successful in encouraging companies currently operating in the state—some of which had scaled back operations drastically or were planning on pulling out of the state—to consider expanding their writings there.

“We’ve had some new companies come in and we’ve also had some other companies who’ve already been in the state agree that they’re going to open up and write some more,” said Jody A. Miller, executive vice president of the Professional Insurance Agents of Louisiana. “So we’re excited about that.”

In January PIA Louisiana and the Independent Insurance Agents and Brokers of Louisiana (IIABL), in conjunction with the Louisiana Department of Insurance, launched public relations campaigns designed to let insurers know about the insurance and tort reforms that have been implemented in the state over the past several years. (See Insurance Journal – Texas/South Central, Jan. 26, 2004, Vol. 10, No. 2.)

Last year the Louisiana Legislature passed Senate Bill 721, establishing the flex band rating system, which allows insurers to modify their rates up or down by 10 percent without the approval of the Louisiana Insurance Rating Commission (LIRC).

In addition, the Legislature passed a measure authorizing the creation of the Louisiana Citizens Property Insurance Corporation, which operates the FAIR and Coastal plans. The bill revamped the FAIR and Coastal plans to provide a mechanism for building reserves and to allow the plans to raise rates high enough so as to not get in the way of competition.

The public relations efforts by the agents’ groups have been mostly targeted toward homeowners insurers, since the number of carriers willing to cover homes in the state has dwindled drastically in recent years.

Louisiana Insurance Commissioner J. Robert Wooley estimated that since June 2003, five new homeowners insurers have entered the state and at least four more have begun the process of filing paper work for certificates of authority.

“We’ve been very pleased,” Wooley said. “We’ve met with larger companies, such as Hartford, we’ve met with Zurich, we’ve met with Safeco, we’ve met with Farmers, all of which were looking at various lines of insurance, including personal lines and homeowners, and expanding their business here. We’ve also got a lot of smaller regional companies that have shown interest in and have actually come in for the first time.”

Jeff Albright, executive director of the IIABL, echoed the sentiment. “We have had a number of companies who have been here, but have been relatively dormant, gear up. They’ve been impressed enough that they feel like they want to commit some more capital and resources and do more business here, which is very exciting.”

Albright said one of his favorite stories from the past years concerns Dallas-based Republic Insurance Company, which had been planning to pull out of the state.

“We asked to meet with them,” Albright said. “It was before our legislative session last year. We sat down and talked to them and said: ‘Look, we’ve got all these things on the drawing board, we really think we’re going to improve the situation pretty dramatically here with flex band rating.’

“And they were very concerned about their residual market assessment under the FAIR and Coastal plans. We told them about the Citizens proposal. And they were pleased enough that they said, ‘Well, we could wait a couple of months to see how you make out.’

“To make a long story short, they had an agents’ meeting here [recently] and announced that they are going to be very aggressively expanding their writings in Louisiana, including launching into commercial lines for the first time.”

Albright added that after meeting with the agents’ groups and the insurance department, Farmers Insurance Company also decided to expand its offerings in Louisiana.

“They were so impressed when they were done they decided they would bring in a whole new residential property program, a dwelling-type program,” Albright said. “They … were rolling this out in a few states, gradually, and they decided that Louisiana was looking good enough that they would make it one of the early states.”

Homeowners are apparently not the only beneficiaries of the reforms. Wooley said as many as 16 companies that write something other than homeowners insurance have also filed certificates of authority since last summer.

A balancing act
As with any other regulatory system in any other state, Louisiana’s task is to implement reforms that will create a healthy business climate while safeguarding consumer protections.

Two bills currently working their way through the legislative process address each end of that business-consumer spectrum. House Bill 1514 by House Insurance Committee Chair Karen Carter, D-Orleans Parish, would work in insurers’ favor by creating a file and use system for property/casualty commercial lines. HB 349, by Rep. Troy Hebert, a Democrat who represents Iberia and Vermilion parishes, would offer consumers protection by establishing a firm definition of a claim. Both bills passed the House with no dissenting votes.

HB 1514 would further diminish the authority of the LIRC, Albright said. “It basically takes all commercial lines away from the Rating Commission.”

Under the file and use system created by the bill, insurers would submit their rate filings to the LDI’s Office of Property and Casualty and wait 45 days before implementing the new rate. The rate filing is deemed authorized unless it is disapproved in writing by the Office of Property and Casualty during the waiting period. Any disapproved filing can be appealed within 15 days before the LIRC.

The American Insurance Association, which helped get HB 1514 to the House floor, applauded its passage. “Louisiana has historically been a tough state for insurance companies, but this bill would go a long way toward encouraging more insurers to write new business in the state,” stated John Marlow, AIA assistant vice president, Southwest Region, in a published announcement. “By implementing a file and use rating system, Louisiana would join the mainstream of other states with regards to commercial lines rate filing systems.”

Wooley said he worked with the AIA on compromises to the bill that would keep a lid on potential abuses by the insurance industry.

“We’ve been able to put some handbrakes on [HB 1514], in case I determine that there’s a line that doesn’t really have a market.” He added he didn’t want to see the measure create a situation described by its opponents where “rates would spike and companies would get some unfair profits until the market filled in behind it.”

HB 349, which provides that a simple inquiry by a policyholder to the insurance company is not a claim, was also a product of compromise.

“It was somewhat controversial at first,” Wooley said, “and we worked with the industry to try and come up with something that doesn’t cause them a lot of problems, but also affords our consumers protection.”

Albright said agents are backing the claims bill along with the commercial de-regulation measure. He noted that while there is a statute on the books that restricts insurer cancellations of policies that have been effective for more than three years, “there’s no specific statutory definition of what a claim is. Is a claim when a customer calls on the phone and says, ‘I think maybe something happened to my property?’ Or is it when [the insurance company] sends an adjuster? Or when the adjuster says, ‘Yeah you’ve had some damage,’ or is it when they cut a check?”

Albright added, “In the last couple of years not all companies, but some companies I would say, have been overly aggressive in having a very loose interpretation of what a claim is. And at the point that [the insureds] call the company and indicate that they may have an incident, if that’s the second one, they’re gone. And with the homeowners market as difficult as it’s been, the most likely market for that homeowner is going to be the FAIR and Coastal plan, which is going to be two and three times the price.”

Wooley indicated the bills are running together through the process by design. “We don’t want to make [consumer protection] a strike against us [as far as] companies coming here. So we’ve tried to work with the industry to come up with something that we think is balanced.”

He pointed out the dangers in moving too fast in reforming a regulatory environment that has been very restrictive.

“A lot of the things we are doing are going to change the situation here in Louisiana, we’re working to do that,” Wooley said. “But we’re trying to do it in a responsible manner. Because, if you take the personal lines homeowners market, where we really don’t even have a market, and you totally de-regulate it and go to a use and file, I think you would have a lot of problems. … By moving in the right direction and doing it with different segments of the industry, I think is a responsible way.”

Open for business
The state’s insurance reforms go hand in hand with the economic development efforts of Louisiana Governor Kathleen Blanco, who has declared that, “Louisiana is open for business.”

Wooley noted that Gov. Blanco has been included in many of the meetings with companies interested in the state.

“She’s been an integral part of this process because she understands it dovetails with what she’s trying to do, which is economic development,” Wooley said. “And you can’t do economic development unless you have a healthy insurance market, because you have to insure these businesses that are coming in. So it’s all part of that climate that you have to create. She understands that.”

Meanwhile, the agents’ groups have been proactively monitoring and trying to eliminate bills that have been introduced in this session that are counter-productive to their efforts.

PIA Louisiana’s Miller said much of the association’s time has been spent “trying to protect the legislation that was passed last year and making sure nothing gets reversed.”

Jeff Albright acknowledged that the situation is much the same for his group. “There are lots of bad bills that we’re killing. …” Albright said. “But by and large most of the bills that would have an adverse impact on the industry have already been killed. … It’s settling down into a pretty quiet routine at this point.”

Wooley said there are a few other bills he’s interested in, including SB 852, which concerns teenage drivers. And he noted that SB 341—which Gov. Blanco signed in early May—was ” very significant.” The measure prohibits passengers from having open containers of alcohol in vehicles

“Consumer reaction [to the reforms] I think has been positive,” Wooley said. “I actually ran my campaign on the fact that I am going to fix the problem by bringing in more companies and giving consumers more choices, and hopefully lower prices. It’s what Wal-Mart says, ‘more choices, lower prices.’

“People understand competition does benefit them. … You can promote a healthy competitive atmosphere, which is going to help industry, and it is going to help consumers. And you can do a good job helping consumers and making sure that companies do what’s right.”

Editor’s note: This story appears in the June 7, 2004 issue of Insurance Journal – Texas/South Central.