As Florida grapples with addressing the issues that led to the current property/casualty insurance crisis, another hurricane-prone coastal state, Louisiana, is battling its own insurance woes.
Louisiana’s property insurance market has been deteriorating since the state was hit by a record level of hurricane activity during the 2020/2021 seasons, says Triple-I in a new issues brief on the state’s insurance crisis. Twelve insurance companies writing coverage for Louisiana homeowners were declared insolvent between July 2021 and February 2023.
“While there are similarities between the situations in these two hurricane-prone states, the reasons behind their insurance problems differ in important ways,” said Mark Friedlander, director of corporate communications for Triple-I. “Florida’s problems are largely rooted in decades of abuse litigation and fraud, while Louisiana’s problems were more related to undercapitalized insurance companies and not having enough reinsurance to afford claims incurred during the record hurricane seasons of 2020 and 2021.” “.
Insurers have paid out more than $23 billion in insured losses from more than 800,000 claims filed from two years of heavy hurricane activity. The largest property loss events were Hurricane Laura (2020) and Hurricane Ida (2021). The increasing volume of losses has also prompted dozens of insurance companies to voluntarily withdraw from the market and more than 50 to stop writing new business in hurricane-prone parishes.
That’s not to say abuse of the legal system is absent as a factor in Louisiana’s crisis — quite the opposite, as Insurance Commissioner Jim Donilon outlined in February’s cease and desist order against a Houston-based law firm. According to Donilon, the company filed more than 1,500 hurricane-related lawsuits in Louisiana over a three-month period last year.
“The scale and scope of McClenny, Moseley & Associates’ illegal insurance scheme is unlike anything I’ve seen before,” Donilon said. “It is rare for management to issue regulatory actions against entities that we do not regulate, but in this case, it is necessary to protect policyholders from the company’s fraudulent insurance activity.”
McClainy-Mosley has since been suspended from practice in Federal Court for the Western District of Louisiana because of her work on Hurricane Laura insurance cases.
According to a joint paper published by the American Property Accident Insurance Association (APCIA), the Reinsurance Association of America (RAA), and the Bermuda Association of Insurance and Reinsurance Companies (ABIR).
“Insurers who fail to pay claims or provide a written offer of settlement within 30 days of proving a loss may face penalties of up to 50 percent of the amount owed, even for purely technical violations,” the paper notes note. “To avoid incurring these massive penalties, which are imposed on highly subjective standards of behaviour, insurers sometimes feel compelled to pay more than the actual value of claims as the lesser of two evils.”
As a result of these closely spaced shareholders, Louisiana Citizens Property Insurance Corp. grew. — the state-run insurance company of last resort — 35,000 to 128,000 policyholders over the past two years, according to the Louisiana Department of Insurance.
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