The Louisiana House of Representatives has passed a bill combining the Coastal and FAIR Plans, two of the state’s so-called “insurers of last resort,” under a new state-created entity called the Louisiana Citizens Property Insurance Corporation. According to the the American Insurance Association (AIA) the legislation should help stabilize the the homeowners insurance market in the state.
“Our goal is to create a market of last resort for property insurance coverage in Louisiana that can accumulate reserves with a tax-exempt status, thereby enhancing the claims-paying capacity for a catastrophic event,” said John Marlow, AIA assistant vice president, southwest region. “AIA took the lead in working with agents and other insurance and business interests through the Coalition to Insure Louisiana to develop this legislation.
Major components of the new corporation include the following changes in the way the plans are currently run:
· The proposed new corporation would be authorized to keep some of its revenue tax free to build up a rainy day fund from which claims could be paid after a natural disaster. The FAIR and Coastal Plans cannot currently keep excess revenue as profit.
· If a major disaster hits and the reserve fund does not cover all of the damages, bonds could be issued to pay claims and private insurance companies, which now face one large assessment for their share of those claims, could spread out the payments that would be made to pay off the bonds. Those payments could be passed on to the companies’ customers in the form of a surcharge.
· Safeguards would be instituted to keep the Coastal and FAIR Plans from becoming competitive with private insurers (e.g., the plans’ premiums in each parish must be 10 percent higher than the average rate charged by the private company charging the highest rate in the parish).
· The state would not be financially responsible for the new corporation that will run the Coastal and FAIR Plans.
HB 1788, sponsored by Rep. Dan Morrish (D), passed the Louisiana House of Representatives by a vote of 95-6. The bill has now been referred to the Senate Insurance Committee for consideration.
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