New Louisiana Citizens Takeout Law Expected to Encourage Private Carrier Participation

Aug 20, 2010

By Richard J. Fidei, Partner
Colodny Fass


Louisiana Governor Bobby Jindal signed House Bill 952 into law on June 21, 2010, whereupon it became effective immediately.  Sponsored by Representative Charles Kleckley, the measure provides for changes to encourage more Louisiana Citizens Property Insurance Corporation (“Louisiana Citizens”) depopulations. 

Under prior Louisiana law, policies issued by Louisiana Citizens could be taken out by eligible property and casualty insurance carriers so long as the depopulation consisted of bundled groups of not less than 500 policies and included polices issued under the Louisiana Coastal Plan and the Fair Access Insurance Requirements Plan.  Also, minimum percentages of the composition of the bundled policies had to include certain risks.

Upon the effective date of HB 952, all in-force policies with all risk characteristics issued by Louisiana Citizens shall now be offered at least once a year for depopulation in all geographic regions.  Each insurer is required to provide Louisiana Citizens with a list of policies it proposes to take out and an authorization from each policyholder’s agent of record.

The new law also changes the type of eligible takeout insurers from only homeowner insurers and those covering commercial structures to include those also insuring one or two family owner-occupied premises for fire and allied lines.  Rather than submitting a plan to Louisiana Citizens that would be otherwise subject to review and approval by the Louisiana Department of Insurance, the new law provides that Louisiana Citizens’ Board of Directors has the authority to approve all applications.

Under the new law, each insurer must evidence its capacity to absorb the proposed takeout policies.  This requirement may be satisfied by providing a copy of a valid certificate of authority issued to the insurer by the Louisiana Department of Insurance.  HB 952 also reduces the required rating for eligible takeout insurers from A- to B+ with A.M. Best or its equivalent.

The rates to be utilized by takeout companies have to be filed with, and approved by the Louisiana Department of Insurance prior to the effective date of the policy assumption.  Proof of this action must be provided to Louisiana Citizens.

A noteworthy provision under the new law requires insurers to obtain takeout authorization from each policyholder’s agent of record.  Presumably, any insured who does not want to be taken out by the proposed takeout company may be able to direct his or her agent to refuse to authorize the takeout.  Also, agents can rely on this requirement to circumvent takeout of their policies if they are not satisfied with the takeout company or the amount of the commission they would receive from the takeout company.

One risk to the State of Louisiana under this law is that carriers will now be able to select only the best policies in Louisiana Citizens without having to bundle them with less attractive risks.  This could result in more pronounced adverse selection for Louisiana Citizens.  On the other hand, this provision is attractive to takeout carriers and will likely further reduce Louisiana Citizens’ policy count, although there could be more private market competition for the best of Louisiana Citizens’ policies.


Should you have any questions or comments, please contact Rich Fidei ( at Colodny Fass.