Louisiana Insurance Reform Allows Insurers to Raise Rates Before State Approves Hikes

Home and auto insurers in Louisiana can now raise rates prior to approval by state regulators, thanks to a quartet of new laws designed to address the state’s ongoing insurance crisis. The bills also allow home insurers to drop up to 5% of their homeowners insurance policies in the state every year.

Proponents of the legislation, including Tim Temple, state insurance commissioner, say the rule changes will bolster Louisiana’s struggling insurance market by making it easier for insurers to do business in the state. Critics say the laws remove important consumer protections and could worsen the state’s insurance crisis.

Louisiana’s insurance crisis

Homeowners in Louisiana face the second-highest property insurance rates in the country.

The average annual cost of homeowners insurance in the Pelican State is $6,354, according to Insurify data. Louisiana will also see the highest rate increases of any state in 2024, Insurify analysts predict. A projected 23% rise will bring Louisiana’s average home insurance cost to $7,809 per year.

As in other coastal states, climate change and massive insurer losses due to storm damage are major contributors to Louisiana’s insurance crisis. In the past few years, multiple homeowners insurance companies have either gone insolvent or stopped selling policies in Louisiana.

The shrinking pool of home insurers diverted thousands of homeowners to Louisiana Citizens, the state’s insurer of last resort. As a result, Citizens requested — and received approval for — a 63% rate increase in 2023.

Insurance reform bills

In early May, Louisiana Gov. Jeff Landry signed into law four bills that Temple called “a major step toward reforming Louisiana’s insurance market.”

• SB 295 applies to all lines of property and casualty insurance, including homeowners and auto. The law preserves the requirement that all insurers file detailed applications with the state’s insurance office for rate changes — a practice also active in many other states. But the law now automatically assumes the state approves all rate changes. Regulators will have 30 days to review the applications and notify insurers if the state doesn’t approve the change. If Temple decides the market has improved, the review period extends to 60 days.

• HB 611 repeals a law unique to Louisiana that prohibited home insurers from non-renewing policies in effect for three years or longer. Effective Aug. 1, 2024, insurers can ask the insurance commissioner for permission to non-renew up to 5% of policies annually for any reason, although they can’t all be in the same parish. Insurers can also ask the commissioner to approve non-renewal of more than 5% of its policies.

• SB 323 lowers penalties against insurers that fail to resolve property and casualty claims within 30 days of the claim filing. Previously, policyholders could collect penalties of up to 200% of their loss if a court decided their insurer acted in bad faith and avoided paying a justified claim. Now, the most a claimant can collect is $5,000 or 50% of their damages, whichever amount is greater.

• Finally, HB 120 extends the Louisiana Fortify Homes Program, which provides grants of up to $10,000 for qualifying homeowners to improve their roofs to Insurance Institute for Business & Home Safety standards.

What’s next? The market waits

Landry and Temple say making it easier for insurers to operate in Louisiana will entice more companies to do business in the state and competition among insurers will lead to lower prices for policyholders.

“Our hope is that this package of bills will start to create more balance in the law and in the market such that we can drive the cost of property insurance down so it’s more affordable for our citizens,” Landry said in a statement announcing the bills’ enactment.

“I think this package of bills makes us competitive with other states,” said Sen. Kirk Talbot, chairman of the Senate Insurance Committee. “That will turn into availability, which should turn into affordability.”

But opponents of the bills say they’re more likely to make matters worse for Louisiana residents.

Housing Louisiana called the bills “a win for insurance companies [that] does nothing to guarantee help for the people of Louisiana suffering through this insurance crisis,” ABC affiliate KTBS reported. “It will increase insurance company profits by permitting them to drop longtime policyholders, raise rates without needed reviews, and limit lawsuits when insurance companies break the law.”

In an April letter, consumer watchdog group Consumer Federation of America (CFA) urged the Legislature to reject the repeal of the three-year rule. CFA said insurers are downplaying the role of climate change and “skyrocketing” reinsurance costs in the insurance crisis while “exaggerating the effects of the three-year rule.”

HB 611 will allow insurers to purge thousands of policies from their books of business, forcing many more homeowners to turn to Citizens or go without coverage, CFA said. The many issues driving Louisiana’s home insurance crisis “should be addressed,” the organization said. “But taking away one of the few existing consumer protections from homeowners will not solve these problems. It will only make things worse.”