Legislation that would reform how insurance rates are regulated in Louisiana cleared a major hurdle this week, passing the full House in a 97-3 vote. According to the National Association of Independent Insurers, Senate Bill 721 now has passed both chambers with amendments, and travels to either a conference committee or the Senate for concurrence before moving to the governor.
“The measure would greatly increase the availability of insurance in the state,” said Greg LaCost, counsel of the NAII, a founding member of a coalition pushing proposals to modernize the state’s insurance laws this year. “Providing more flexibility in Louisiana’s rate-making process will result in consumers having more companies and policies to choose from as companies would find more of an incentive to enter or return to the Louisiana marketplace.
“A free market approach to the insurance market works best for everyone. This bill is a compromise between those who prefer a fully-regulated market and those who desire a free-market, less regulated approach.”
Currently, insurers must obtain prior approval on all rate changes from the Insurance Rating Commission, which can constitute long delays in approval and create artificially suppressed rates. SB 721 would allow insurance companies to raise or lower rates by up to 10 percent within a year without appearing before the Insurance Rating Commission for approval. Under the bill, insurance department actuarial staff would still review rate adjustments to determine if they are reasonable. Rate changes exceeding 10 percent would still require approval by the rating commission as well as the insurance department.
“The prior approval law here often dictates what companies must charge policyholders, regardless of what it costs to insure them,” LaCost said. “This stringent rate and filing requirement, coupled with the lack of competition, is why Louisiana posts the second highest average property premium in the nation — second only to Texas.”
The so-called “flex-band” rating system has worked to bring back insurance markets in South Carolina and Oklahoma, according to NAII data. Since South Carolina switched to a flex-band rating system in 1999, 105 new auto insurers have entered the market, average auto insurance rates have decreased and the state’s residual market plan dropped dramatically.
SB 721 is part of a legislative package supported by the NAII and the Coalition to Insure Louisiana, a broad-based group of business and professional organizations formed this year that includes the NAII.
Other measures the group is tackling include SB 245, which would enable insurance companies to file a rate change and then use the adjusted rate within 30 days. This bill has passed the full Senate and been assigned to a House insurance committee.
HB 1788, a measure that reforms the state-run market of last resort known as the Louisiana FAIR and Coastal Plans, advanced from the full House and resides in a Senate committee.
SB 851, which passed the full Senate, and HB 521, which has stalled in a House committee, would lower the state’s monetary threshold for obtaining a trial by jury.
Another property/casualty insurance-related bill, HB 1476 would allow surplus lines insurers to enter pleadings without posting a bond. The measure has passed the full House and resides in a Senate committee.
Louisiana’s legislative session ends June 23.