Podcasts
Podcast: Reflections on the Insurance Regulatory Landscape: A Conversation with McGlinchey’s Newest Member, Former Commissioner Donelon, Part 2
Read Time: 9 minsThis is the second episode in More with McGlinchey’s two-part series on reflections on the insurance regulatory landscape; click here to listen to part one.
When Katrina came through Louisiana, it cost insurers $23.5 billion in insured losses – just off the record, the most expensive hurricane event, not only in our state’s history but anywhere in the world.
Lauren Ybarra: Hi, I’m Lauren Ybarra, a member of the McGlinchey Stafford’s Insurance regulatory practice team. And this is part two of our interview with Jim Donelon, McGlinchey Member and former Commissioner of Insurance of Louisiana.
You were Commissioner during Hurricane Katrina. Can you speak about that?
Jim Donelon: Absolutely. Prior to Katrina, the worst insured loss event in our state’s history had happened in 1992. Our version of Hurricane Andrew, after making a devastating landfall in South Florida, made a second landfall in the center of our coastal area here in Louisiana and cost insurers for their losses in our state half a billion dollars, $500 million, setting the record for an insured loss event in Louisiana history. In 2005, when Katrina came through Louisiana, it cost insurers $23.5 billion in insured losses – still the record, the most expensive hurricane event, not only in our state’s history but anywhere in the world. And that record stood until Hurricane Ian hit Florida in an expensive part of their coast, in the Naples area of the west coast of Florida. I don’t know for sure what the insured losses were, but I am confident, based on the projections I saw before I left office, that it exceeded Katrina. And that’s a distinction and a record I’m glad to see removed from our state.
Lauren Ybarra: Given your longstanding relationship with the National Association of Insurance Commissioners (NAIC) and as an Insurance Commissioner working with the different states, how do you want to help the insurance industry, meaning insurance companies, carriers, and agents? How do you foresee helping them in your role here at McGlinchey?
In 2005, when Katrina came through Louisiana, it cost insurers $23.5 billion in insured losses – still the record, the most expensive hurricane event, not only in our state’s history but anywhere in the world.
Jim Donelon: My role now is to be on the other side of the aisle. I’m now in front of these regulators, advocating for things that will make their markets stronger and more attractive. We are all dependent on the international reinsurance market. That market is two-thirds located offshore from the U.S. and domiciled in places like Toronto, Bermuda, London, Munich, et cetera.
We in Louisiana primarily depend on them for two substantial risks. One is climate and hurricanes, and the other is our very expensive and very dangerous, if you will, petrochemical industry. Not only exploration for oil and gas but also the refining of oil and gas produced, and the insuring of related plants. We have an inordinate number of chemical plants that pose significant risks to the insurance industry.
So, what I hope to do as an advocate for consumers, businesses, and insurers doing business in our state is to articulate with my former colleagues across America and to the leadership at the NAIC – which is not a regulatory body, it’s an association of regulators. Their primary role is to adopt model laws enforced through an accreditation system that’s been in place since the nineties that will be consumer-protecting but also user-friendly for those regulated across the country. I daresay I know almost all commissioners on a first-name basis. I think I have their confidence and respect for the time I served with them.
By advocating for solutions for our challenges, which are daunting and increasing in recent years, whether it’s wildfires or tornadoes, which are as horrific as they are but not as devastating from an economic point of view as the hail that comes with them. The tornado is dangerous; it takes lives, but it’s a limited footprint of a dozen or so properties. But the entire county or parish, as we in Louisiana call them, is affected by the hail that accompanies a tornadic event. Which surprised me when I first saw it – [hail] has resulted in Oklahoma being the fourth most expensive homeowners market in America behind the usual three of Texas, Louisiana, and Florida. I asked, Oklahoma? There aren’t hurricanes up there, not even wildfires to speak of. But I then realized with their tornadoes come hail in Oklahoma which can be bigger than hurricanes even in Texas.
My role now is to be on the other side of the aisle. I’m now in front of these regulators, advocating for things that will make their markets stronger and more attractive. We are all dependent on the international reinsurance market. That market is two-thirds located offshore from the U.S. and domiciled in places like Toronto, Bermuda, London, Munich, et cetera.
Lauren Ybarra: This might be a fun tidbit, but my alma mater for law school was the University of Tulsa, and their mascot was the Golden Hurricanes. Yep. It was always puzzling that we were landlocked and dealing with tornadoes but no hurricanes in the area. They did have a good football team, as good as they could be. Me being from Texas, so.
Jim Donelon: They’ve been a serious rival to Tulane, where two of my daughters graduated, and one played volleyball against the Golden Hurricanes. And I’ve always wondered where that came from.
Lauren Ybarra: Your guess is as good as mine. I should look that up one day.
Jim Donelon: I bet. It’s interesting.
Lauren Ybarra: Speaking of your involvement with the National Association of Insurance Commissioners (NAIC), do you foresee your legal practice serving clients in just Louisiana or these Gulf South States, or do you foresee it being a national practice with every coastal state and interior states as well?
Jim Donelon: Well, by law it is directed and forced to be more national than local. Our ethics law has, I call it a “cooling off period” of two years from the time you leave a state office, not just insurance, but any office, Governor, Highway Department, health and hospitals, anything that gives you authority over state agencies. There’s a two-year cooling-off period before you can represent folks to those agencies and other aspects of state government. There are exceptions to it, and I can do things in Louisiana, but they’re limited.
the NAIC – which is not a regulatory body, it’s an association of regulators. Their primary role is to adopt model laws enforced through an accreditation system that’s been in place since the nineties that will be consumer-protecting but also user-friendly for those regulated across the country.
With that said, I hope to be able to bring my talents and my ability on behalf of McGlinchey clients in the other 49 states and beyond, the territories. And also to Bermuda and London, where I have close relationships with folks that are members of ABIR, it’s called, the Association of Bermuda Insurers and Reinsurers. And, of course, Lloyd’s of London, where we as a state for most of my time were their fifth-largest premium paying state in America. We have since slipped somewhat to seventh or eighth these days. But in my last visit there last fall, when I lamented losing our status as their fifth-biggest U.S. customer, they said, well, you can take solace, Commissioner, in the fact that you’re still bigger than Italy, and you’re bigger than Germany in our market.” Lloyd’s is invaluable to Louisiana and the rest of America, where they’re called upon to ensure exotic and highly risky activities, even all the way up to and including horse racing, if you will. They have long been the lead insurer for that activity.
So I think I will be busy enough advocating on behalf of clients to the other 49 commissioners and Bermuda, London, et cetera, that will fill my time until another year and a half runs and I can resume full activity in the state of Louisiana Department of Insurance and other state agencies.
Lauren Ybarra: That’s great. We look forward to utilizing your communication and experience in all 50 states and concerning Louisiana in a year and a half for those limited areas that you cannot cover now. Looking big picture, I will ask this in a two-part question: what do you see as trends at the NAIC for regulation, and then separately, what do you see at the state level, as those may differ?
Jim Donelon: The NAIC has been for, I’d say, ten years focused on cyber risk and the insurance industry’s ability to affordably respond to that risk. And I’m proud to say that we were one of the first dozen states to adopt the NAIC Model Law for regulators dealing with cyber hacking and ransomware insurance coverages. We have that law in place here in Louisiana. It’s not a secret.
I can talk about our neighbors here in our building, which, during my time, was a victim of a hacking event that we worked with them effectively to resolve. Before that, a number of health insurers nationwide, were hacked. I learned in that process that there’s more value in the black market for health data than there is for property and casualty (P&C) data like driving records and losses by P&C carriers, all of which lends itself to making insurance available, but also affordable for businesses and individuals who want coverage against those kinds of activities. Add to that a rapidly growing risk for wildfire in the current environment as well as more intense and powerful hurricanes, as we have seen.
The NAIC has been for, I’d say, ten years focused on cyber risk and the insurance industry’s ability to affordably respond to that risk. And I’m proud to say that we were one of the first dozen states to adopt the NAIC Model Law for regulators dealing with cyber hacking and ransomware insurance coverages. We have that law in place here in Louisiana.
We mentioned Katrina earlier: a category three, a hundred-mile-an-hour storm when it made landfall on the border of Louisiana and Mississippi. In 2020 and 2021, 13 months apart, we had two category four hurricanes, Laura and Ida: 150 mile an hour hurricane winds, each of those storms, 13 months apart, when they made landfall on the coast of our state. So, the challenges are growing, more complex, and more expensive daily.
The NAIC is charged with leading the response of the 55 jurisdictions, including our territories, to those challenges. The NAIC has also done an excellent job of providing guidance and leadership to regulators dealing with those issues. Catastrophe models have emerged for regulators to use in pricing and regulating insurance pricing for things such as hurricanes, tornadoes, and other convective storm events. But that’s just one example of the things that the NAIC takes a lead in, in trying to be supportive of the regulators that make up their membership.
Lauren Ybarra: Thank you. Speaking to artificial intelligence, cyber risks, all of those, have you seen any discussion, whether in your state, Louisiana, or other states, about insurers collecting what might be outside-of-the-box, outside-of-the-ordinary information and data on insureds, and how to use that? For example, you mentioned driving history or driving data. Many insurance carriers are opting in to use these – I don’t know if they’re cameras, motion sensors, or detectors – and they’re collecting massive data on their drivers. Have you seen any movement or speaking of that at NAIC.
Jim Donelon: Not to reign in using that data. That collection of relevant data to driving habits has been around for, frankly, 20 years that I’m familiar with. I think it was first brought to my attention when Allstate Insurance was offering drivers, who agreed to be monitored, a significant reduction in their cost of auto insurance, which our state, unfortunately, is, if not the most expensive in the top three perennially, for drivers to access coverage. And so it took off, it was popular and it continues today. I had to change my insurance coverage recently. I went to a major national carrier that offered that savings to me that I rejected just out of, oh, I don’t want anyone monitoring my activities. But I have since thought, why not? I’m not ashamed of my driving habits. I think it would qualify for a discount with my carrier, but I initially, in a knee-jerk fashion, said no to that offer. But the NAIC has not seen fit to venture into adopting model laws or regulations or statutes for the states to use to address and regulate that aspect of the auto insurance marketplace.
Lauren Ybarra: I hope those devices will take into account the streets in New Orleans. I was visiting this last weekend from Austin, Texas, where I live. I mean, I have never been bounced around in a car like that over all the potholes on every, seemingly every street. So I hope they will take that into account. So insurance carriers and tech companies, if you’re out there, please give these New Orleans and other parish drivers a major discount if they can navigate those streets without bottoming out, breaking a tire, or popping a tire.
The NAIC has also done an excellent job of providing guidance and leadership to regulators dealing with those issues. Catastrophe models have emerged for regulators to use in pricing and regulating insurance pricing for things such as hurricanes, tornadoes, and other convective storm events. But that’s just one example of the things that the NAIC takes a lead in, in trying to be supportive of the regulators that make up their membership.
Jim Donelon: It’s quite a challenge. And I remember somewhere over the last 10 or 20 years reading that New Orleans and Boston have the worst streets in America. I don’t know what the deal is in Boston. I know our excuse is that our soil is very marshy. Our roads are built on a soft foundation, and therefore, they deteriorate faster. But the streets in Boston, I understand are cobblestone, and for some reason, that’s not conducive to long-term usability.
Lauren Ybarra: Well, Jim, thank you so much for being on this podcast and, of course, joining McGlinchey. We have been so honored to have you and utilize your tenure as Commissioner, and experience, and knowledge of insurance, how it operates, and where it’s going. So, thank you so much for joining us.
Jim Donelon: It’s been my pleasure. Thank you. I look forward to continuing to work with you.
Lauren Ybarra: Well, that’s it. I’m Lauren Ybarra. Thank you for joining us. Until next time.
Subscribe wherever you listen to podcasts:
