Louisiana Homeowners Face Insurance Challenges As 2022 Hurricane Approaches | Bankrate

From haunted places to the streets of New Orleans, Louisiana has a charm that few states can match. But Louisiana’s location along the Gulf Coast and low-lying areas along its southern border make it vulnerable to hurricane damage. Due to the threat of hurricane damage, the state’s home insurance market is facing challenges. Bankrate investigated the situation and spoke with several insurance experts to understand the situation and how it affects Louisiana homeowners.

Key points

  • Six home and casualty insurance companies were declared insolvent as of August 2020.
  • Louisiana is at high risk for hurricane damage, making it difficult for insurance companies to operate.
  • Home insurance rates are set to rise in Louisiana due to the predicted 2022 hurricane season.

What is happening in the Louisiana insurance market?

Many Louisiana insurance companies are rethinking their risk underwriting skills. The threat in Louisiana has already caused several companies to go bankrupt, while the rest of the companies have stopped registering new businesses or pulled out of the state. This environment is limiting homeowners insurance options.

Jim Donelon, Insurance Commissioner for the State of Louisiana, spoke to Bankrate about the situation. “We’re challenged, there’s no question,” he says.

“It’s a very difficult market to get support from.”

— Jim DonelonCommissioner of Insurance for the State of Louisiana

While other states have experienced home insurance problems — Florida’s problem continues — every problem is unique. Let’s see what is happening in Louisiana.

Why are insurance companies struggling in Louisiana?

So what is causing the panic among insurers? In Louisiana, it all comes down to hurricane risk.

Mark Friedlander, Director of Corporate Communications at the Insurance Information Institute, explains: “Louisiana’s insurance crisis has been fueled by extensive property damage from the hurricane, which has hit many small, underfunded regional insurers. more.”

Donelon agrees, noting that six companies have been out of business since Hurricane Laura in August 2020. Although losing six companies may not seem like a big deal, Donelon also points out that there is no way to know how many companies have suspended their commercial operations. Hundreds of thousands of law enforcement officers have been affected, and more may follow.

Risk of hurricanes

For many companies emerging from the Louisiana market, the reason is simple: the state is too dangerous.

Donelon says Louisiana “had a long and quiet hurricane season until 2020.” The home insurance market may have started to stabilize a bit after the crisis it faced after Hurricane Katrina in 2005. With less damage, the companies were able to pay lower premiums and save less money (the money. set aside for claims).

But 2020 and 2021 brought four hurricanes in a row – Laura, Delta, Zeta and Ida. These four storms caused $76.65 billion about damage in Louisiana. About 72%, or $55 billion in damages, came from Hurricane Ida, which hit the state at the end of June 2021. The rapid increase in the level of risk – not to mention the significant increase in claims – was enough to limit property insurance costs with five deaths and one. companies. Even companies with sufficient capital to withstand major damage may not be ready or able to deal with what the National Oceanic and Atmospheric Administration (NOAA) predicts will be stronger than average. 2022 hurricane season.

“This has caused companies to withdraw or suspend their listings in our insurance market.”

— Jim DonelonCommissioner of Insurance for the State of Louisiana

And it’s likely to get worse. According to National climate assessment, hurricanes have increased in frequency, frequency and strength since the 1980s and are predicted to continue to become stronger. As the risk of mass casualty increases, it may be less likely that insurance companies will want to do business in Louisiana.

Reinsurance money

The Louisiana insurance market operates, primarily, on a reinsurance basis. Reinsurance is a type of insurance that an insurance company buys to protect against financial risk. Basically, reinsurance means that the most vulnerable areas of the world are helping to support the ability of insurance companies to operate in the most vulnerable areas.

But reinsurance costs money, just like any other insurance. Insurance companies are paying more to restore protection due to the increasing number of natural disasters around the world. Donelon confirmed that insurance rates are going up and that insurance companies have passed on some of those benefits to policyholders in the form of higher rates.

What is being done to solve this problem?

While all of this sounds scary — and it is — Louisiana is taking steps that will stabilize the market.

Lee Ann Alexander, Vice President of State Government Relations at the American Property Casualty Insurance Association (ACPIA), spoke with Bankrate about the insurance bills included in the 2022 Louisiana Legislative Session. He said, “[The legislators] they have raised the financial agreements that companies must make to participate in the government to ensure that this does not happen too often, and it is important. “

Basically, this means that insurance companies must prove financial stability in order to be allowed to write policies in the government. This makes it easy for the industry to suffer from hurricane damage.

What should Louisiana homeowners expect?

Louisiana already has the sixth highest home insurance premiums in the country at $2,009 a year for a $250,000 home. This is 45% higher than the national average of $1,383 per year. Home insurance rates are increasing across the country to keep pace with inflation, and Louisiana’s high risk rate is causing home insurers to rethink their pricing practices. Louisiana insurers cannot use hurricane damage to justify rate increases, but they can use future forecasts. With the 2022 hurricane season predicted to be more dangerous than ever, prices will increase throughout the year.

If you are a high-risk homeowner, you may need coverage through Louisiana’s ultimate home insurance company, Citizens. Note that the company is responsible for charging higher rates than the average market, so coverage is more expensive. But for many Louisiana homeowners, Citizens may be the only option for home insurance. The company is also designed to handle policy overload at critical times and strives to offload these policies to the private market when risks subside.

Nicole Ganley, Senior Vice President of Public Affairs at APCIA, also points out the importance of reviewing your financial situation. “Make sure your finances are running smoothly,” he says. “Make sure your policies are up-to-date; go make sure you have enough support. Inflation is a big problem. “

A very important point

Louisiana has always been difficult, even for the best home insurance companies. However, a string of four devastating hurricanes between 2020 and 2021 has forced many insurers into bankruptcy and prompted others to voluntarily leave the state.

“I think what you’re seeing moving forward is a country that continues to, unfortunately, be vulnerable.”

— Lee Ann AlexanderVice President of State Government Relations at the American Property Casualty Insurance Association

Donelon believes the government can attract smaller home insurance companies to fill the carrier’s exodus. He understands the issues on an intimate level; he was among the landlords who lost coverage due to the company’s failure. “It’s tough; it’s tough,” he says. “But hopefully — prayerfully — we can get through another hurricane season without what’s happened in the last two years.”