(The Center Square) – Louisiana Insurance Commissioner Jim Donelon has announced a private insurance company will acquire an estimated 30,000 homeowners’ insurance policies from two insolvent carriers state officials placed in receivership last month.
Donelon had filed injunctions against State National Fire Insurance Company of Baton Rouge and Access Home Insurance Company of New Orleans over unpaid policyholder claims stemming from Hurricane Ida, a category 4 storm that made landfall Aug. 29.
Court-appointed receivers attempted to “rehabilitate” the troubled companies rather than liquidate them. Donelon, however, recently agreed to a private sector acquisition of State National Fire and Access Home homeowners’ insurance policies.
“The takeover means that an estimated 30,000 Access Home and State National Fire customers will be able to avoid the task of finding other suitable insurance and perhaps turning to the Louisiana Citizens Property Insurance Corp., the state-sponsored insurer of last resort, to find coverage,” an Department of Insurance statement said.
The acquisition company has not been identified, as certain terms and conditions are still being negotiated, the statement said. The 19th Judicial District Court will either approve or reject the final agreement, which could transpire before the end of the year.
Donelon said seven private insurers had expressed interest in the policies and three companies formally submitted bids. The new insurer is acquiring unearned premiums – or the period remaining on each existing policy – with an effective date of Dec. 1.
“Most policyholders will not need to worry about finding new coverage. Their policies will automatically transfer to the new insurer on the same rates and terms as Access Home and State National Fire offered,” Donelon said.
The Louisiana Insurance Guaranty Association (LIGA) will be responsible for insurance claims from Hurricane Ida and other events occurring before Dec. 1.
LIGA is a nonprofit safety net entity that can access up to 1% of all state-member insurance companies’ annual funds to pay for a failing member’s financial obligations. Member insurers also receive tax credits that are applied over a 10-year period.
LIGA covers up to $500,000 per claim and has a limit of $10,000 for unearned premiums, according to its website.
A key distinction in the arrangement, however, applies to the length of time each policyholder was insured under the two defunct companies.
Louisiana also has a consumer protection statute that requires the new insurer to retain the existing level of coverage and premium rates for Access Home and State National Fire policyholders if the were customers for more than three years.
If policyholders were customers for less than three years, the new insurer could choose not to renew their homeowners’ policies and either offer new rates and coverage terms or turn them away altogether.
“Those customers may need to find new coverage,” the Department of Insurance said.
If no other insurance company is willing to take on high-risk customers within the former Access Home and State National Fire customer pool, Donelon said the Louisiana Citizens Property Insurance Corp. would serve as the insurer of last resort.
The state-backed nonprofit is required to offer coverage at higher prices than private property insurance companies to avoid competing with private businesses, according to the entity’s website.
“Louisiana Citizens Property Insurance Corporation is required to ensure its rates are at least 10% above voluntary market rates,” a statement read.
According to the Department of Insurance, State National Fire issued about 9,000 policies, or 0.14% of the Louisiana homeowners’ insurance market, and $2,945,198 in direct premiums. Access Home had about 19,697 policies, or 0.86% of the homeowners’ insurance market, and $17,684,440 in direct premiums.