James J. Donelon, Louisiana, Commissioner of Insurance

With his state still in recovery mode after last year’s Hurricanes Katrina and Rita, Louisiana Commissioner of Insurance Jim Donelon is arguably one of the busiest state insurance regulators in the U.S. While hurricane-related issues command the bulk of his time and energy, Donelon recognizes other concerns, like a lack of affordable health care insurance for many citizens of his state, equally deserve his attention.

Before the hurricanes struck in 2005, the state had implemented tort and insurance regulation reforms in an effort to stabilize its insurance market and encourage carriers to enter the state and develop new products for Louisiana’s insurance consumers. By most accounts the effort was paying off. Even now, some have credited reforms with helping to keep insurers in Louisiana despite monumental catastrophe losses.

At a recent meeting of the National Associa-tion of Insurance Commissioners, Donelon spoke with Insurance Journal’s Andrew Simp-son on topics such as health care and maintaining a viable property insurance market in the wake of last year’s dual catastrophes.

Insurance Journal: Before we talk about some of the problems with hurricanes, are there issues other than property insurance that the department faces or hasn’t had time to look into?

Jim Donelon: Oh, sure, we have a number of issues like every other state has. If you asked me my priority it would be the uninsured and underinsured as to health insurance population in our state, where 20 percent of our state’s four million-plus folks are uninsured for health insurance, for a total of 800,000. That’s right up there at the top, or second to the top, of the 50 states in percent uninsured with regard to health insurance.

In our state historically, it has been exacerbated by the fact that we have the largest in the land state health care delivery system, called the Charity System, which is a safety net of sorts for folks in the lower economic end of our population. … [According to] the Kaiser Family Foundation Study, we are at the national average for a family of four in cost of health insurance in Louisiana. Now, that national average is burdensome for folks in Louisiana because our per capita income is in the bottom 10 of the 50 states. So as a percent of income it’s burdensome.

IJ: Have you gotten ideas from other states that you might think about adopting in Louisiana?

Donelon: Indeed, just this morning we spent three hours in a public hearing, hearing from advocates of the new Massachusetts plan, the New York plan, the Vermont plans, as well from former commissioner Larry Morell, here in the District of Columbia, who created an innovative system for his jurisdiction when he was in charge. …

We have an opportunity in Louisiana right now. The hurricane destroyed the Charity System, at least for the New Orleans population, and we are going to rebuild that system in a new and different way than it has been for the past 50-plus years. So these ideas will be very helpful as we go forward in giving the governor and the legislature guidance as to what would best serve our constituents.

IJ: What has been the most difficult challenge for your department in the wake of the hurricanes?

Donelon: Our first duty, we felt, was consumer protection and consumer assistance. We received over 125, 000 phone inquiries over issues as commonplace as, ‘Can you tell me who my company is? My agent had to evacuate; he or she isn’t back. I can’t get in touch with him or her, can you look in the database and determine by e-mail communication with the companies that have appointments for my agent, who he or she placed me with,’ down to 6,000-plus formal complaints on the actual handling of those claims. That, we feel is our first duty, to those folks who were impacted by those storms.

Second to that is to keep insurance available, keep the companies writing in our state at an affordable rate, and I’m pleased to say that no company has left our marketplace yet. Some have pulled up from writing along the coastal parishes, but when you talk about coastal parishes in Louisiana, that’s Lake Charles, Lafayette, Baton Rouge, New Orleans, etc. That experience for us is no different than what’s going on up and down the Atlantic Coast and all through the Gulf Coast. When I was in New York promoting the sale of the billion-dollar bond issue for our Citizens, Allstate, the world’s largest insurance company, announced no new policies in the six coastal counties of New York State, much like what we’re experiencing in South Louisiana. That’s my greatest challenge at the moment.

IJ: Has that required some intervention on your part?

Donelon: We have actually on the books the best homeowners insured consumer protection statute in America. It says that if you’ve been with a company for three years, unless you have two or more non-act-of-God claims in a three-year period of time, you and they are married for life, no changes to your policy, no exiting, no changes to deductibles without your concurrence. That keeps most of our policies in place and intact. And the companies to their credit have been accommodating on a voluntary basis their insureds as they relocate from a parish like St. Bernard, that got wiped out … they have voluntarily said, ‘If you’ve been one of our insureds, and you dropped your old policy where your property was wiped out, we will write you a new policy to replace it in the new place that you relocate to in Louisiana.’ That’s been very helpful.

IJ: You looked into claims practices following the hurricane; what have you found and what concerns do you have?

Donelon: We have compared complaints, the 6,000-plus formal complaints I mentioned earlier, with market share. And those who had the highest percentage are being subjected to what is called market conduct exams. … We’re not at the point of knowing what those exams will show.

Another big issue … is the prescription period—almost all homeowners policies sold in Louisiana have a one-year prescription. Contractors, roofers, suppliers, are so hard to come by in the southwest and southeast corners of our state that folks have not been able to complete their claims process within that period of time, myself included. …

I have communicated with all the companies and asked that they, through my office, unilaterally extend that period to two years. If they do so, I will post it on our Web site and our hurricane page that we update on a daily basis, and I will use the media to publicize those companies that do inform me of their stipulation or amendment to their policies extending that provision out to two years. I think it is in the companies’ interest, because if they don’t, tens of thousands of lawsuits will have to be filed this summer. It’s in the consumers’ interest as they struggle to get their lives rebuilt and their properties repaired. [Editor’s note: Since this interview took place, 99 percent of insurance companies in Louisiana have indicated they will extend the prescription period.]

IJ: What will your steps be once you see what the market conduct exams reveal?

Donelon: If we find serious violations of laws, under our statues or regulations that are applicable to claims handling we have the option to suspend certificates if called for, or fine or take other disciplinary action against companies. [Insurers] have the right to appeal that action if they disagree with it, but we’re not there yet. We don’t know what these audits, these market conduct exams, will produce but when we have that information we will take appropriate action.

IJ: I understand that while you’re here in Washington, you are taking the opportunity to speak with the Louisiana delegation in Congress.

Donelon: Senators [David] Vitter and [Mary] Landrieu both accepted my offer to visit them and update them on the status of the claims handling experience and the insured losses that we have incurred in southeast and southwest Louisiana. The rest of the delegation also … have several appointments scheduled with members of our congressional delegation. In addition to the hurricane related issues I’ll be talking to them again, as I have in the past, about state regulation versus federal regulation. And they of course have an ongoing interest in that issue and for the most part have been very supportive of the state based system.

IJ: So you don’t think a federal regulation system would be wise?

Donelon: No, I don’t think so, and in Louisiana our experience in these hurricanes has convinced us that a FEMA insurance program or regulator in place of a state insurance regulator is not the way to go.

Topics Catastrophe New York Legislation Claims Louisiana Hurricane