Louisiana 2007 Regular Legislative Session: Insurance Bill Summary

Redevelopment of the insurance market was one of the key issues of the 2007 Louisiana Regular Session, which adjourned on June 28, 2007. 

A number of insurance-related bills were passed during the Session, some of which were cited by insurance trade associations as potentially making it more difficult for insurers to write homeowners policies in Louisiana.

With Louisiana’s Insurance Rating Commission being the last regulatory panel of its kind existing in the nation, the passage of House Bill 960 providing for its abolition and the establishment of the Office of Consumer Advocacy within the Louisiana Department of Insurance was long-anticipated by the insurance industry.  HB 960 also provides for a file-and-use rating system, giving the Commissioner of Insurance 45 days to reject rate changes. 

Previously, industry-supported similar legislation was vetoed in 2001 by then-Governor Mike Foster.  However, in 2003, the Louisiana Legislature approved a bill that watered down the Commission’s power by allowing insurers to bypass the Commission if a proposed rate increase or decrease was less than 10 percent.  Rate oversight under HB 960 will be assumed by the Louisiana Department of Insurance and Louisiana Insurance Commissioner Jim Donelon.

Establishment of the Insure Louisiana Incentive Program through the passage of House Bill 678 also was seen as the centerpiece of a joint legislative agenda between Governor Kathleen Blanco and Commissioner Donelon.  HB 678 provides that the Commissioner of Insurance may grant matching capital funds to qualified property insurers from a $100 million fund. The grants would be available in $2 million to $10 million increments if recipient insurance companies infuse a comparable amount and maintain a minimum surplus of $25 million.  The bill also includes tax credits in 2008 for policyholders whose homeowner’s insurance rates increased after Hurricanes Katrina and Rita and allows for a seven percent premium credit, which totals an estimated $105 million to $110 million in credits statewide. 

Following is a brief summary of insurance and related bills that passed during the 2007 Louisiana Legislative Session, as well as several measures that failed. 

If signed by Governor Blanco, the effective date of the bills passed is August 15, 2007, unless otherwise provided by the bill.  All bills are awaiting Gubernatorial action.

House Bill 960

House Bill 960 abolishes the Louisiana Insurance Rating Commission (LIRC) and transfers all of its powers, duties and functions to the Office of Property and Casualty within the Department of Insurance.  The bill also creates the Office of Consumer Advocacy within the Department of Insurance.

The Office of Property and Casualty would regulate all insurance rates or rate changes for property and casualty insurance lines.

House Bill 678

House Bill 678 establishes the Insure Louisiana Incentive Program, a State match grant program for property insurers who commit to writing new business in Louisiana.  The purpose of the program is to foster economic development and stability in Louisiana by encouraging additional insurers to participate in the voluntary property insurance market. Further, the bill seeks to increase the availability of property insurance, to provide competitive insurance rates, and to substantially reduce the volume of business written by Louisiana Citizens Property Insurance Corporation, thereby providing a less expensive alternative to its policyholders and reducing Citizens’ exposure to an increased deficit and future assessments.

The bill provides that the Commissioner of Insurance shall issue a public invitation to insurers to submit grant applications. In initial applications, the minimum grant award would be not less than $2 million nor more than $10 million.  In the initial award of grants, the Commissioner shall allocate 20 % of the total amount available to domestic insurers.

A second invitation for grant applications shall be issued in the event that all monies in the fund are not allocated as a result of the first invitation. Insurers who have been awarded a grant in response to the first invitation may apply for an additional grant up to the $10 million limit.  Any remaining monies in the fund shall be returned to the state general fund after the Commissioner has finalized all authorized grants.  The total amount of available program funds is whatever the Legislature appropriates or makes available to the fund.

To apply for the grants, insurers must write 25% of the net written premium for policyholders whose properties were formerly insured by Citizens.  At least 50% of the net written premium is required from policyholders whose property is located in parishes included in the Federal Gulf Opportunity Zone Act of 2005.  At least half of the 25% of net written premium to be received from policyholders who were formerly insured by Citizens must be for properties located in the parishes included in the Federal Gulf Opportunity Zone Act of 2005.  The bill also provides compliance criteria for insurers who receive the grant.

House Bill 558

Insureds who build or retrofit a structure to comply with the State Uniform Construction Code or install mitigation improvements to reduce the amount of loss from a windstorm or hurricane will receive a discount, credit, rate differential, adjustment in deductible, or other adjustment to reduce their insurance premium under House Bill 558.  The bill also requires the Commissioner of Insurance to promulgate rules and regulations, including the inspection and certification requirements for insureds who comply, to implement the provisions of this bill no later than July 1, 2008.

Senate Bill 153

Senate Bill 153 requires Citizens Property Insurance Corporation, Louisiana’s “insurer of last resort” for residential and commercial property applicants who cannot obtain insurance through the voluntary market, to bundle their policies in groups of not less than 500 and offer them for sale to private insurers not less than once per calendar year.  Policies issued under the Coastal Plan and Fair Plan must be included. The bill requires that these policies include geographic and risk characteristics that serve to reduce Citizens’ exposure. Further, 25% of the policies that are bundled must be policies providing coverage to structures located in the parishes where the wind and flood mitigation requirements prescribed in present law apply. Also, at least 75% of net premiums that are received from policyholders shall be from insurance policies covering single-family residential structures, residential duplex structures, or residential fourplex structures.

Every insurer authorized to write property insurance in the State may submit a takeout plan to Citizens, then to the Department of Insurance for review and approval based on certain criteria. The take-out company must have an A- rating with A.M. Best, or its equivalent, but in no event shall the surplus requirements of the take-out company be less than the surplus requirements of any company in the state.

If signed, the bill will be effective November 1, 2007.

 

House Bill 962

House Bill 962 provides that until August 15, 2010, Louisiana Citizens Property Insurance Corporation must charge the higher of actuarially-sound rates or rates equal to the highest of the top 10 insurers with the greatest total direct written premium for residential property insurance in any noncompetitive market until competition resumes.  This stipulation shall not apply to Calcasieu, Cameron, Vermilion, Iberia, St. Tammany, Orleans, Jefferson, St. Bernard, Plaquemines, Terrebonne, and Lafourche Parrishes.

If the Commissioner of Insurance is informed that Citizens is writing more than 50 percent of the residential property insurance business in a market, he must determine if a reasonable degree of competition exists in that market. If he finds that a competitive market does not exist, he must inform Citizens’ Board of Directors.  Citizens will then use the findings in determining the application of its noncompetitive rating structure to residential property insurance policies in the applicable market. The bill also authorizes the legislative auditor to examine the financial records of the Property Insurance Association of Louisiana, the Louisiana Automobile Insurance Plan, and the Louisiana Citizens Property Insurance Corporation.

Additional insurance bills passed that were part of the joint Blanco/Donelon Legislative Insurance Package included:
 
SB 204 – Provides that the phrase “two or more claims within a period of three years,” which is an allowed reason for canceling, failing to renew or increasing a policy deductible in an insurance policy, does not include any loss incurred or arising from an “Act of God” incident that is due directly to forces of nature and exclusively without human intervention. This clarifies an ambiguity in existing law some insurers were using to non-renew homeowners policies. 
 
SB 205 – Creates an Office of Consumer Advocacy in the Department of Insurance and enforcement of an Insurance Consumers Bill of Rights by the Office, which includes a list of rights and protections for Louisiana consumers.  The Office will provide direct assistance and advocacy for consumers that have requested assistance from the Department of Insurance and must be set up by October 1, 2007. 
 
HB 381– Provides that a property insurance policy may not limit the insured’s right of action against the insurer to a period of less than two years when the claim is a first party claim.  This bill changes the period for filing action against an insurer from 12 months to 24 months.
 
HB 472 -  To provide for the adjustment of Louisiana Citizens Property Insurance Corporation’s assessments on assessable insureds and insurers based upon changes to a policy of insurance on a prorata basis; to delete the authorization of its board of directors to establish credit schedules under the Coastal and FAIR plans;and to provide for related matters.

HB 481 – Provides for a flat annual $1,000 financial regulation fee on all companies in lieu of a fee based on an hourly rate for examinations.  This bill takes effect on July 1, 2007.
 
HB 499 – Provides for fees collected by the Commissioner of Insurance.  It simplifies fees and provides for an overall reduction in fees charged to insurers in Louisiana. 
 
HB 596 – Provides for the protection of innocent coinsureds and the effect of misrepresentation by an insured to an insurer. This bill preserves the right of innocent coinsureds to recover their proportionate interest under a fire policy in the event a fire related loss is caused by another named insured.
 

Other Insurance-Related Bills:

Coastal Restoration And Protection

Senate Bill 146

Senate Bill 146, the Windfall Highway, Infrastructure, and Protection Fund, dedicates excess mineral revenues to highway infrastructure, hurricane protection, and coastal restoration projects.  Beginning with the 2008-2009 fiscal year, 25% of all mineral revenues received in each fiscal year in excess of the amount required to be deposited in the Budget Stabilization Fund shall be credited to the Windfall Highway, Infrastructure, and Protection Fund.  This Fund shall be used solely for construction costs for roads, highways, bridges, ports, hurricane protection and/or coastal conservation and restoration projects. 

Beginning July 1, 2009, 50% of such revenues are to be credited to the Fund. The law also requires the money in the Fund to be invested by the Treasurer and all unexpended and unencumbered money in the Fund at the end of the year is to remain in the Fund. The legislation specifies the uses of the funds.  Revenues from mineral production activity or leasing activity on the Outer Continental Shelf are excluded.

Senate Bill 53

Senate Bill 53 creates the 15-member Louisiana Coastal Protection and Restoration Financing Corporation, whose purpose is to carry out the financing, purchasing, owning and managing of offshore royalty revenues for coastal restoration and protection.

Tax Credits

House Bill 225

House Bill 225 authorizes an annual “sales tax holiday” for the purchase of certain hurricane-preparedness items or supplies during the last weekend of May each year, and applies the tax exemption on the first $1,500 of items purchased.

Building Code

House Bill 704

House Bill 704 revises the statewide mandatory building code using the International Residential Code that was passed during the 2005 First Extraordinary Session.

Changes include the following:

• Eliminates the three year terms of Council members and provides that members of the Council shall serve at the pleasure of the Governor.
• Provides that all municipalities and parishes shall use code enforcement officers or certified third-party providers contracted by the municipality, parish, or regional planning commission to enforce the codes.
• Further clarifies the intent of the Legislature that manufactured housing be governed by the Federal standards governing construction and the state standards governing installation.
• Allows homeowners building their own residence to use certified third-party providers for plans review and inspections.
• Provides that architects and engineers shall be granted certificates of registration as third-party providers for their specialty.
• Provides that enforcement of the International Residential Code (IRC) shall only be mandatory with respect to new construction, reconstruction, additions to homes previously built to the code, and extensive alterations.
• Extensive alteration means:  An alteration when the total area of all the work areas included in the alteration exceeds fifty percent of the area of the dwelling unit.
• Adopts the 2006 version of the IRC, which was amended to include the 2003 design criteria. Keeps such version in place until 2009.
• Provides that the Council may adopt rules with respect to soil testing and prohibits the council from adopting Parts of the Code that have been excluded by present law.
• Amends the energy part of the residential code to require that supply and return ducts be insulated to a minimum of R-6 (Instead of the current R-8).

Health Insurance

House Bill 542

House Bill 542 creates the Louisiana Children and Youth Health Insurance Program and requires the Department of Health and Hospitals (DHH) to use the same simplified enrollment procedures for the program which are used for the Louisiana Medicaid program and the Louisiana Children’s Health Insurance Program (LaCHIP).  The bill also provides for additional procedures to simplify the enrollment process.  DHH may use income determinations made by the Food Stamp Program, WIC, or the National School Lunch Program to calculate income eligibility for Medicaid or LaCHIP, depending on the outcome of future Federal legislation. 

The legislation contains a cost-sharing requirement for subsidized insurance for the responsible party of a child enrolled in the program. DHH is also authorized to collect required premiums from the family or party responsible for each child enrolled in the program

 

LOUISIANA HEALTH FIRST

Senate Bill 1

Senate Bill 1 enacts the Health Care Reform Act of 2007 called “Louisiana Health First” to revamp the State’s health care delivery system for Medicaid recipients and low income uninsured citizens. The Act consists of a medical home system of care which is a health care delivery system that is patient and family-centered, and is guided by a personal primary care provider who coordinates and facilitates preventative and primary care that improves patient outcomes in the most cost-efficient manner possible.  Provides access to appropriate specialty care and inpatient services; provides medical management and provider accountability; emphasizes patient and provider accountability; and prioritizes local access to the health care services. The managed care networks would be overseen by the State and put together by public and private health-care providers. Louisiana Health First would begin as a pilot program in the New Orleans and Lake Charles areas.

The bill is subject to annual appropriation by the Legislature.  It defines health information technology as information technology used in health care, including but not limited to electronic health records/electronic medical records, computerized physician order entry, health information exchange, telemedicine, and other relevant information technology deemed appropriate by the Secretary of the Department.

The bill provides for the adoption of health information technology to fully participate in Louisiana Health First and requires that the Department avail itself of any public and private funding available to implement health information technology.  The Department of Health would be allowed to establish a mechanism to evaluate and improve the medical home system.

The Department of Health would be required to establish reimbursement methodologies to compensate providers who care for Medicaid recipients and citizens in the medical home system. Reimbursement of services for low-income uninsured individuals shall be allocated to the greatest extent possible based on the disbursement of the low-income uninsured population statewide.

 

Other Hurricane Recovery Activities

To address past and future hurricane-related expenses, substantial additions have been made to the Louisiana’s budget for Fiscal Year 2007.

• $4.8 billion in additional disaster recovery funding from the Community Development Block Grant (CDBG) for The Road Home program, including 27 new positions, have been added to the budget for Fiscal Year 2007. The Joint Legislative Committee on the Budget approved over $368 million for this program in Fiscal Year 2006.
• The Fiscal Year 2007 budget includes an appropriation of approximately $25 million for one evacuation and sheltering event from the State Emergency Response Fund, which received a deposit of $150 million for such purposes.
• The Louisiana Recovery Authority (LRA) is budgeted at nearly $4 million, including 30 positions to direct the State’s resurgence from the effects of Hurricanes Katrina and Rita.
• Homeland Security and Emergency Preparedness has been budgeted $2 billion in additional Federal funding from FEMA related to hurricane disaster recovery.

 

Insurance-related bills that did not pass

House Bill 649 provided for a property insurance “Policyholder’s Bill of Rights” and created the Office of Insurance Consumer Protection in the Governor’s office to represent consumers before the Louisiana Insurance Rating Commission and the Commissioner of Insurance.

The bill died on the House floor.

House Bill 747 would have established rules and regulations for the operation of all terrain vehicles (ATVs) for children under the age of 16 and prohibits children under 6 from operating such vehicles.

The bill was defeated in the House by a vote of 51-40.

House Bill 786 would have prohibited teenage drivers from driving with more than one passenger under the age of 20, unless all passengers are members of the driver’s family.

House Bill 786 was defeated in the House by a vote of 38-60.

House Bill 824 would have allowed smoking in some restaurant bars.

The bill was involuntarily deferred in the House Health & Welfare Committee.

Senate Bill 93 would have required certain mental illnesses to be covered under health insurance policies.

The bill failed to pass the House Insurance Committee.

 

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