Market Still Fragile as La. Legislature Adjourns, Insurer Group Says

In the wake of hurricanes Katrina and Rita the 2006 Louisiana legislative session was very contentious; however, lawmakers rejected the proposals that would have been detrimental for consumers and the insurance marketplace, according to the Property Casualty Insurers Association of America (PCI).

“We were in a very tough fight to protect the insurance marketplace from a wide array of measures that had the potential to throw the market into chaos and make insurance much less affordable and available,” said Greg LaCost, assistant vice president and regional manager for PCI. “During the session the stability of the insurance marketplace was threatened by legislation that would have saddled insurers with excessive regulation, increased litigation and significantly impaired their ability to conduct business. Although some of the legislation that passed will force rates to increase and hamper competition, based on the overall tone of the session, we are satisfied with this year’s outcome.”

The major insurance bills of the session passed in the final days before the June 19 adjournment. In an attempt to give consumers more time to file insurance claims or lawsuits associated with hurricanes Katrina and Rita, the Legislature passed HB 1289 and HB 1302. This legislation advanced even though many insurers were voluntarily complying with a request from Commissioner Donelon not to strictly enforce the normal 12-month prescriptive period.

“This legislation sends a negative message not only to insurers, but to the entire business community,” said LaCost. “These bills are inappropriate because the Legislature is interfering with the terms and conditions of the insurance contract that were agreed upon by the insurer and the policyholder. By rewriting the insurance contract, the Legislature is threatening the sanctity of all contracts.”

The Legislature passed a bill (SB 620) that will increase rates for consumers by doubling the penalties assessed against insurers and forcing them to pay the consumer’s attorney fees if they fail to pay a claim within 30 days of receiving a valid proof of loss.

“The 50 percent penalty gives the consumer ample money to recover their loss, plus additional money to pay their attorney fees,” said LaCost. “Adding attorney fees to this arbitrary time limit of 30 days does not benefit the claimant. On the contrary, this legislation rewards attorneys at the expense of the state’s policyholders.”

In other legislation that passed this session HB 1056 will require the licensing of claims adjusters and claim adjuster firms with the commissioner of insurance prior to conducting business in the state. This bill will require the licensing of both internal company adjusters as well as independent adjusters. In opposing this measure, LaCost pointed out that the law will increase insurers’ expenses by $4 to $5 million per year with out benefiting consumers. In addition it has the potential to slow down the process of bringing in out-of-state adjusters during a catastrophic event.

Insurers were successful in modifying legislation that would have banned the use of credit information in underwriting and rating. HB 318 was amended so that insurers may continue to use credit information, however for policies that renew between Aug. 15 and Dec. 31, 2006, if a change in credit information would result in a premium increase, the use of credit is prohibited.

Other successes of the session occurred with the defeat of SB 693, which would have repealed the flex-rating law. This legislation would have been a severe blow to the state re-establishing its competitive marketplace and contributed to insurance availability and affordability concerns.

Another major success was the defeat of SB 510, which would force insurance companies to cover “concurrent cause of loss,” essentially mandating that companies cover losses for which a premium was not charged.

“This legislation would have undermined Louisiana’s fragile insurance market,” said LaCost. “In this instance the Legislature rejected an attempt to rewrite the insurance contract. SB 510 would have made it impossible for insurers to determine what events they are covering or how to price the coverage. If companies can’t accurately price coverage, they will simply abandon the market. For Louisiana that would have made the rebuilding effort even more difficult and residents would have been forced to bear the ultimate burden of having very limited options and very expensive insurance coverage.”

Source: PCI