Louisiana Citizens Property Insurance Corp. would suspend a 10% surcharge paid by customers in the state’s coastal zone and be shielded from bad-faith penalties if a newly amended bill is enacted into law.
The legislation authored by state Sen. Kirk Talbot (R-River Ridge), SB 113, has passed the Louisiana House of Representatives with amendments and has been returned to the state Senate for further review. The measure would suspend the 10% surcharge on coastal customers’ policies for three years, and policyholders in the remainder of the state would pay a 5% assessment.
Louisiana Citizens is the nonprofit insurer of last resort for property owners in the state. According to current law, the company charges a premium of 10% based on either the actuarially justified rate or the highest rates charged by private insurers in Louisiana – whichever is higher.
Richard Newberry, the Louisiana Citizens CEO, indicated that the surcharge reduction would not cause any problems for the company’s ability to do business.
“By statute, we are required to charge the higher of 10% over the highest qualifying market rate in each parish, or 10% over the actuarially sound rate,” Newberry said in an email to the Louisiana Record. “Because of our statutory rate requirements, financial stability from the 5 to 10 percent three-year reduction should not create an issue for us.”
Another provision in the legislation would exempt Louisiana Citizens from potential bad-faith penalties that are typically assessed on insurers when companies fail to act in a timely and efficient manner to investigate and settle claims. Such penalties could reach 50% of the amount owed in litigated claims.
“Other than two counties in Alabama, every residual market covering the entire Gulf of Mexico has complete statutory immunity from bad faith,” Newberry said. “As the only nonprofit market of last resort with bad-faith penalties in the Gulf of Mexico, we are at a disadvantage when competing for capacity as well as competitive rate-on-line from global reinsurers. Those costs are unfortunately passed along to policyholders.”
Insurance Commissioner Tim Temple supports the bill’s provisions, according to John Ford, the Department of Insurance spokesman.
“Commissioner Temple supports shielding Citizens from bad-faith penalties because it is the right thing to do,” Ford said in an email to the Record. “As a state-created, not-for-profit insurer, Citizens is not incentivized to act in bad faith. The only people who will suffer from excessive penalties on Citizens are the policyholders who would have to pay to make it whole if it were to ever fail.”
The rate reductions will not harm the company’s financial stability, he said.
"While the legislation does suspend 5-10% of that surcharge for three years, it does not prevent Citizens from charging an actuarially sound rate that will allow Citizens to maintain its financial strength,” Ford said.
In a previous prepared statement, Temple stressed that the legislation would provide well-deserved relief to property owners.
“The amendment to remove the additional 10% premium on Citizens' coastal policyholders, as well as removing 5% of it for everyone else, for three years will provide much-needed financial relief to over 100,000 Louisiana homeowners and allow time for the property reform measures that have been passed to take effect,” he said.
The removal or reduction of the surcharges was originally contained in legislation by Rep. Matthew Willard (D-New Orleans), but that bill failed to advance in the House.
Critics of the exemptions for Louisiana Citizens say the changes would only encourage the insurer to delay and deny claims.