The Louisiana property insurance market has been deteriorating since the state was hit by a record level of hurricane activity during the 2020/2021 seasons, Triple-I says in a new Issues Brief on the state’s insurance crisis. Twelve insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2023.
“While similarities exist between the situations in these two hurricane-prone states, the underlying causes of their insurance woes are different in important ways,” said Mark Friedlander, Triple-I’s director of corporate communications. “Florida’s problems are largely rooted in decades of litigation abuse and fraud, whereas Louisiana’s troubles have had more to do with insurers being undercapitalized and not having enough reinsurance to withstand the claims incurred during the record-setting hurricane seasons of 2020 and 2021.”
Insurers have paid out more than $23 billion in insured losses from over 800,000 claims filed from the two years of heavy hurricane activity. The largest property loss events were Hurricane Laura (2020) and Hurricane Ida (2021). The growing volume of losses also drove a dozen insurers to voluntarily withdraw from the market and more than 50 to stop writing new business in hurricane-prone parishes.
This is not to say legal system abuse is absent as a factor in the Louisiana’s crisis – quite the opposite, as highlighted by Insurance Commissioner Jim Donelon’s cease-and-desist order, issued in February, against a Houston-based law firm. According to Donelon, the firm filed more than 1,500 hurricane claim lawsuits in Louisiana over the span of three months last year.
“The size and scope of McClenny, Moseley & Associates’ illegal insurance scheme is like nothing I’ve seen before,” Donelon said. “It’s rare for the department to issue regulatory actions against entities we don’t regulate, but in this case, the order is necessary to protect policyholders from the firm’s fraudulent insurance activity.”
McClenny Moseley has since been suspended from practice in Louisiana’s Western District federal court over its work on Hurricane Laura insurance cases.
A regular on the American Tort Reform Foundation’s “Judicial Hellholes” list, Louisiana’s “onerous bad faith laws contribute significantly to inflated claims payments and awards,” according to a joint paper published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), and the Association of Bermuda Insurers and Reinsurers (ABIR).
“Insurers who fail to pay claims or make a written offer to settle within 30 days of proof of loss may face penalties of up to 50 percent of the amount due, even for purely technical violations,” the paper notes. “To avoid incurring these massive penalties, which are meted out pursuant to highly subjective standards of conduct, insurers sometimes feel compelled to pay more than the actual value of claims as the lesser of two evils.”
As a result of these converging contributors, Louisiana Citizens Property Insurance Corp. – the state-run insurer of last resort – has grown from 35,000 to 128,000 policyholders over the past two years, according to the Louisiana Department of Insurance.