Companies Writing Homeowners Insurance In Louisiana - A neatly stacked foam rug damaged by Hurricane Ida waits to be installed at the curb as rain from Hurricane Nicholas falls in Metairie on September 14, 2021.
Golden Century Estate Apartments, owner of Sao Chong Center, inspects apartments damaged by Hurricane Ida, Thursday, Sept. 2, 2021, in La Place, La. (Photo by Max Bacher, Times-Picayune | New Orleans Advocate)
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A carefully piled carpet waits to collect foam damaged by Hurricane Ida as rain falls from Hurricane Nicholas in Metairie on September 14, 2021. Staff photo by MAX BECHERER
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Over the past decade and a half, more than 129,000 policyholders have been dropped from Louisiana Citizens Property Insurance Corp., the state's insurer of last resort. Through a program known as demography, some risky policies were placed with unaudited private insurance companies as the agency tried to reduce its exposure to future hurricane losses.
Few homeowners knew how vulnerable some of the new private insurers really were until the companies faced their first major challenges in 2020 and 2021 — a period that included four powerful hurricanes.
Every year since 2008, Louisiana Citizens policies have been offered to private insurers. No company that has applied has ever been rejected. Some insurers were barely acting when they chose to underwrite homes for vulnerable Louisianans.
Six of the 18 participating companies have since been declared insolvent - four of which held the bulk of the policies. Two insurance companies were swallowed up during the merger after struggling financially. At least two others have left the country.
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A Times-Picayune review found that half of the 18 companies had low financial stability ratings when they agreed to underwrite hundreds and in some cases thousands of policies. These companies were one downgrade away from being ineligible to sell insurance to people with federally backed mortgages.
Not every participating company failed financially. Better rated insurers generally take fewer policies from the risk pool. Many of them survived difficult hurricane seasons - even if their balance sheets were damaged.
Consumers rarely ask Louisianans about switching to an unknown insurer because it often comes with a big discount. After insuring about 170,000 policyholders, the number of Louisiana citizens will drop to about 36,000 by 2021, largely due to the population plan.
The dire results show that the government's strategy is wrong. But regulators and lawmakers say they want to do it again. Some analysts predict that migration away from citizens will be handled more carefully this time.
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"Almost everybody wanted to go back to that time," said Ross Shiles, an independent insurance agent and expert insurance services consultant in Metairie. "This time, we'll probably look at it a little more closely and talk to customers because of what happened with a lot of these companies."
A growing number of bankrupt insurers are forcing homeowners back into the arms of Louisiana citizens, where, by law, coverage must be offered at least 10 percent higher than private options. The organization now has more than 100,000 policyholders, nearly three times as many as before Hurricane Laura.
Insurance Commissioner Jim Donlon is again pushing a plan to pay insurers millions of state dollars in exchange for taking policies off citizens' books. According to him, not removing them could overwhelm the government insurance company.
Some political leaders hailed Donlon's pitch, citing civilian deaths when Hurricane Katrina hit and the agency holding about 170,000 policies. As a result, the organization was forced to borrow nearly $1 billion and pay fixed assessments to every homeowner in the state through 2026.
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"It's a good tool," state Rep. Mike Hoebel, R-Brooks Bridge, told the Joint Budget Committee last month about Donlon's stimulus plan. "I won't say it will fix everything."
Observers in the insurance industry, in interviews, expressed skepticism after checking the program's past performance data. At the very least, one said the state should commit to scrutinizing private insurance companies indefinitely, as long as they underwrite policies in Louisiana.
"These are actually creations of government policy, so the government has a responsibility to monitor them closely," said Robert Hartwig, director of the Center for Risk and Uncertainty Management at the Darla Moore School of Business at the University of South Carolina. "Anything less than that will have significant and very damaging consequences for public policy."
Louisianans have faced challenges finding property insurance in communities below Interstates 10 and 12 for years. Major insurance companies like Allstate and Travelers have pulled out of the area since Hurricanes Katrina and Rita.
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In the years since, Donelon's LDI has lured smaller, more innovative companies to replace them, in some cases offering multimillion-dollar incentives to companies that agree to underwrite offshore assets.
Four of the 18 companies participating in the population program received state grants totaling $29 million. The population program - encouraged by the grants - offered an easy, if risky, route to the Louisiana market, allowing small companies to build a significant book of thousands of customers overnight.
Donlon believed that even small insurance companies could do a better job of managing catastrophe risk than a government-created entity such as Citizens. He believed that competition was important.
"Our companies were damaged by Hurricanes Laura, Delta and Zeta. Those that failed did not re-insure themselves properly for Hurricane Ida," Donlon said. "It's up to them, obviously, but we're not going to let it happen again. We're going to try not to let it happen again."
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To better understand the population plan, The Times-Piqueon asked for a list of the companies that applied and how many civilian policies each received. The newspaper also examined the sustainability ratings given to each company at that time by AM Best and Demotech - two of the most prominent rating agencies in the industry.
The industry depends on the ratings because the Federal National Mortgage Association, or Fannie Mae, has minimum requirements for properties purchased with government-backed loans. Each company has its own rating system and scale. For AM Best, there is at least one "B", and Demotech has at least one "A". If an insurer slips below that threshold, it could quickly collapse.
Of the 18 insurers that depended on the population, half had an "A" rating or better from Demotech when they first participated. Only seven companies had a "B" or better than AM Best. Two of the insurers were not rated by either agency.
Ultimately, Louisiana Citizens' 16-member board of directors approves which companies can accept the organization's policyholders.
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Slidell Mayor Greg Cromer, who sat on the board from 2012 to 2016, said companies that failed after adopting the citizen policy may have been unlucky.
"I know this was not the intended outcome of what happened. They were well-directed," said Cromer, a Republican who previously chaired the state House Insurance Committee. "They took risks that bigger companies weren't willing to take. They created a niche market."
Several changes have been made to the program since its inception. In 2018, the Legislature gave citizens more discretion in deciding when to offer their policies to private insurers. Until then, private companies only took out a few dozen policies a year. The total number of the insured has been reduced to less than 50,000.
"They should have moved as many people as possible to the private market, to give them an opportunity to compare the rates, as opposed to the rate set by the state," Cromer said.
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Agents also played a role. Potential insurers will review all the policies on Citizen's books, and select the ones they want to accept. Then the agent who helped create the original policy chose whether to approve the new insurer.
A "cancellation" letter is then sent to each insured, informing them of the change and how they can stop it. If they don't take action, their coverage will be transferred to the new insurer.
Most people saw the new insurance coverage and lower cost as a relief to citizens from higher prices set by law, said Shells, the independent insurance agent.
"There's a lot of people — the only way they're getting into homes in those 15 years is because they bought these cheap policies," Schalls said. "If we had Allstate or State Farm premiums, if they really meant the wind business, (they would be) twice as high."
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State Rep. Ryan Burick, R-Abbeville, said the transfer of business to homeowners — for example, new companies had limited resources — is a major drawback of the plan. According to him, the process should have been more transparent and its voluntary nature clearer.
"Many homeowners were unaware that their policies had changed hands," Burick said. "In some cases, many homeowners saw a reduction in premiums from Citizens to the new insurer and assumed this would be a positive outcome."
Louisiana's population efforts were inspired by a similar initiative in Florida, where the state's insurer of last resort also paid companies to reduce their risk. And there too he had similar disappointing results.
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