Hanover Insurance Group is dropping thousands of Louisiana property insurance policyholders, but State Insurance Commissioner James Donelon says Louisiana’s residual market for property insurance is shrinking and will continue to do so, thanks to the entry of new insurers in the state.
In late February, Hanover and Louisiana regulators reached an agreement allowing the insurer to partially withdraw from Louisiana’s property insurance market. The agreement affects some 14,000 policyholders.
Hanover’s partial withdrawal comes less than a year after Auto Club Family Insurance Group—known as AAA—began dropping coverage of its more than 10,000 Louisiana property insurance policyholders, claiming it was losing too much money to keep doing business in the state.
Smaller Residual Market
Despite these changes, Louisiana Insurance Commissioner James Donelon says the Louisiana Citizens Property Insurance Corporation—a quasi-governmental agency that writes property insurance for Louisiana residents who can’t buy insurance in the private market—is continuing to shrink.
Citizens now writes 129,000 policies, down from 170,000 in the 24 months after Hurricane Katrina in 2005. This number keeps going down even through the third-worst hurricane loss in Louisiana, Gustav in 2008, caused $2.2 billion in insured losses, Donelon said.
Donelon would like to see Citizens keep shrinking, and he is reaching out to new companies to come to Louisiana.
Insurers Moving In
“We have attracted about one dozen new-to-our-state companies that are actively writing property insurance in Louisiana,” said Donelon. “They and others have taken 40,000 of the policies out of Citizens in the last year and a half.”
The new insurers include Gulfstream Property and Casualty Company, a Florida firm that was recently licensed in Louisiana and will be taking over coverage for about half of those affected by Hanover’s partial withdrawal.
Not In Competition
Ideally, Donelon said, Citizens would shrink by another 29,000 policies, to 100,000, reflecting Louisiana’s need for a residual property insurance market but also the state’s commitment not to place its residual property insurance market in competition with private insurers.
“We’re always going to have large numbers of properties in coastal areas of our state that are going to be hard to insure,” said Donelon. “There will always be the need for a residual market, despite the fact that there is a robust, very competitive market.
“It has been our policy and effort over the past four years to do all within our power to attract private companies into our market to bring that residual market policy count back down to its pre-Katrina levels,” said Donelon. “That, of course, would evidence the full recovery of the property insurance market from the worst insured loss event in the history of insurance.”
Arin Greenwood ([email protected]) writes from Alexandria, Virginia.