Louisiana Legislature gets rid of state’s ‘3-year rule’ for homeowner’s insurance cancellations

BATON ROUGE — The Louisiana Legislature repealed a decades-old law Monday that prevents homeowner insurance policy cancellations.

House Bill 611, sponsored by Rep. Gabe Firment, R-Pollock, received final passage in the Legislature and is now headed to the desk of Gov. Jeff Landry, who is expected to sign it. 

The bill repeals Louisiana’s unique three-year rule, which prohibits insurance companies from raising deductibles and canceling or not renewing homeowner policies in effect for more than three years.

Once Firment’s bill is enacted into law, insurance companies will be allowed to cancel up to 5% of their policies each year as long as the covered properties aren’t all in one parish. But the 5% mark is not a hard cap because companies can cancel as many policies as they want with approval from the state insurance commissioner. 

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The proposal is part of Insurance Commissioner Tim Temple’s industry-friendly agenda to create what he called a “free market” for insurance companies in the state. Before winning election last fall, Temple, a Republican, spent more than two decades in the insurance sector, owning and managing the kinds of companies he now regulates.  

Temple has said the bill is needed to bring competition back to Louisiana. With more insurers writing policies, he believes property owners will seek lower premiums.

Louisiana, particularly the southern part of the state, has some of the highest property insurance premiums in the nation. An increase in the frequency and strength of hurricanes has fueled rate increases and led some of the largest insurers to stop offering policies in areas below Interstate 10.

Temple and other Republicans have argued the three-year rule is the biggest obstacle keeping insurance companies from doing business in Louisiana. Democrats disagree, saying it is the only thing stopping further cancellations and rate hikes. They have also rejected suggestions that Louisiana’s insurance crisis is the result of burdensome regulations and excessive lawsuits.

Louisiana’s insurance market operated many years under the laws Temple is now having repealed. The current crisis began when five costly disasters hit the state between 2020 and 2021, sending several small insurers into bankruptcy or prompting them to leave the hurricane-prone state for areas of lower risk.

Republicans have said the three-year rule has forced insurance companies to raise premiums because it prevents them from managing risk through canceling risky policies. The three-year rule already has exceptions that allow insurance companies to cancel policies that become too risky. Reasons include a “material change in the risk being insured” or if renewing a policy “endangers the solvency of the insurer.”

Editor’s Note: The following article from author Wesley Muller was originally published by the Louisiana Illuminator, an independent, nonprofit, nonpartisan news organization with a mission to cast light on how decisions in Baton Rouge are made and how they affect the lives of everyday Louisianians. Read more from The Louisiana Illuminator @ www.lailluminator.com

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