Louisiana FAIR Plan Unfair?

This is all part of the original law (Subpart B, Part XXX, Chapter 1 of the Louisiana Insurance Code, LSA R.S. 22:1430, et seq.) that created the Louisiana Citizens Property Insurance Corporation, also called the Louisiana Fair Plan and the Louisiana Coastal Plan.

The Fair Plan covered most of Louisiana while the Coastal Plan covered the coastal parishes. The two plans have since been merged into one.

The LA Citizens is a state-run entity that sells homeowners insurance (modeled after a similar entity in the state of Florida). Originally intended as insurance of last resort, it is turning into insurance of only resort, especially since the devastating effects of Hurricanes Katrina and Rita.

With the losses incurred because of the hurricanes, and the relative young age of LA Citizens, LA Citizens never had the opportunity to build enough reserves to handle all claims and has to rely on the State of Louisiana to pay claims. If this was a private insurance company, it would have been declared insolvent.

Instead, all Louisiana taxpayers, not just those who have coverage through LA Citizens, will have to make up the difference. This is done through a Regular and Emergency Assessments levied against private insurance companies. Although multiple Regular Assessments can be levied in a single year, only one Emergency Assessment can be levied per year.

Because of Hurricanes Katrina and Rita, LA Citizens suffered losses of $1.2 billion. With only $70 million in reserves, it had to use a variety of resources to pay the claims against it. One of these resources was an $850 million bond issuance.

To repay the bond, LA Citizens has started levying an Emergency Assessment of 10% for the FAIR Plan and 8.27% for the Coastal Plan. This Emergency Assessment will occur every year until the bond is paid off. This is on top of any Regular Assessments that may be levied by LA Citizens.

Each private insurance company does have the option to pass the Regular or Emergency Assessments onto its policy holders, but it is not a requirement. Prior to the hurricanes, the larger companies may have opted not to pass the assessments on, which is one reason it comes as a shock to many policy holders.

If it is any consolation, LA Citizens policy holders are required by law to pay a policy premiun that is at least 10% higher than private insurance.