Louisiana insurer incentives can help in managing reinsurance cost burden

Louisiana has seen applications from nine property insurers for its incentive program, with the added funding they may receive likely to serve as a lever to help with the reinsurance cost burdens they face at the upcoming mid-year renewals.

As we reported earlier this year, the Louisiana state legislature held a property insurance focused Special Session, the upshot of which was the creation and capitalisation of the Insure Louisiana Incentive Fund, with a proposed $45 million set to be used to encourage more insurance companies to underwrite business in the state.

Louisiana enacted similar legislation after hurricane Katrina, using an incentive fund to entice insurers back to the state.

As we said at the time, the incentive program is widely seen as a stopgap rather than a long-term fix, with reinsurance issues likely to persist in the current hard market and challenge carriers operating in Louisiana.

The Louisiana Insurance Commissioner Jim Donelan announced yesterday that the nine carriers applying for its incentive program were as follows, with the amounts applied for included:

Allied Trust Insurance Company – $6.5 million
Applied Underwriters – $10 million
Cajun Underwriters Reciprocal Exchange (CURE) – $5 million
Constitution Insurance Company – $10 million
Elevate Reciprocal Exchange – $5 million
Gulf States Insurance Company – $3.6 million
SafePoint Insurance Company – $10 million
SafePort Insurance Company – $2 million
SureChoice Underwriters Reciprocal Exchange (SURE) – $10 million

The collective ask is for $62 million, some $17 million more than the Incentive Program had been launched with, being $45 million of approved funding.

“The application period was more than successful, and approved companies will soon begin offering competitively priced options to Louisiana home and business owners,” explained Commissioner Donelon. “Along with several legislative proposals we will introduce to strengthen the market during Regular Session, these insurers will demonstrate to the wider industry that Louisiana is a viable destination to do business on a go-forward basis.”

The Louisiana Department of Insurance (LDI) will review each of the applications and determine their eligibility for participating and funding that can be given.

The funding is expected to be quickly made available, with these insurers expected to start writing business from as soon as April.

An application is set to be made to secure the full $62 million of funding asked from in the upcoming Regular Session of the Louisiana legislative.

The idea is to incentivise new and existing insurance companies to underwrite residential and commercial policies in coastal areas, including taking policies out of Louisiana Citizens, the state’s residual market insurer.

Credit is also expected to be given for those assuming policies out of the shuttering of UPC’s activities in the state.

While the funding is not a particularly significant number, the one thing these amounts can go a long way towards is making the now much higher reinsurance costs less of a burden for these carriers.

There is an expectation that coastal property insurers in Louisiana will face relatively significant reinsurance rate increases at the mid-year renewals, similar in levels to those seen in states like Florida, Mississippi and Texas, we understand.

As a result, those property insurance carriers benefiting from this Incentive Program will find the funding a useful offset to those higher reinsurance costs they are going to have to pay.

For Louisiana, the incentives will help to drive more private market insurance in the state, so also helping to lower Louisiana Citizens exposure and policy count.

This will be achieved as the insurers benefiting from the incentive will need to match the amount in commitments, but also must underwrite four times the incentive payment in new premium value.

As a result, it’s estimated the incentive program could drive roughly $248 million in new coastal property premiums written by private market participants, if the full $62 million applied for is paid out in grant funding.

A Louisiana Citizens depopulation round is expected to begin as soon as the incentive funding is paid out and the insurers in question start writing their business.

The leverage this will provide, can help carriers as a partial offset to their increased reinsurance costs, so as a result does add some stability to the Louisiana property insurance market. But deeper reforms are still being called for and there’s an expectation we could see some at the Regular Session this year that convenes in April.