Louisiana’s Homeowners’ Insurance Challenges
Louisiana is currently the most unaffordable state for homeowners’ insurance in the United States. On average, residents pay 3.84% of their family income towards homeowners’ insurance, which is double the national average of 1.93%. The high cost is primarily due to the state’s vulnerability to hurricanes and lower average family incomes, which are 33% below the national average.
Factors Affecting Insurance Costs
The frequency of catastrophic storms and demographic statistics are beyond the state’s control. However, certain legislative measures can help make homeowners’ insurance more affordable. The period between 2020 and 2021 was particularly challenging for Louisiana’s homeowners’ insurance companies due to four powerful hurricanes: Laura, Delta, Zeta, and Ida. These storms caused significant losses, with insurance companies paying out over $4 in claims for every dollar received in premiums in 2021.
Role of Reinsurance
Reinsurance is a critical tool for insurers to manage risk. It allows them to spread potential losses across the global reinsurance market. Insurers analyze potential losses, retain manageable risk, and purchase reinsurance to cover excess losses. For example, Allied Trust Insurance Company reinsured 86% of its business with over a dozen reinsurers in 2024. However, some insurers like Louisiana Farm Bureau Mutual Insurance Company (LFBMIC) may be overexposed to individual reinsurers, potentially concentrating risk rather than spreading it.
Market of Last Resort
When insurance agents and homeowners cannot secure private insurance, they turn to Louisiana Citizens Property Insurance Co., the state’s insurer of last resort. This nonprofit organization provides insurance at higher rates than the private market. Its premium income surged from $59 million in 2020 to $618 million in 2023 before decreasing to $518 million in 2024. The company aims to ‘depopulate’ by transferring policies to private insurers when feasible.
Reforms and Improvements
Louisiana Insurance Commissioner Tim Temple introduced reforms signed into law by Gov. Jeff Landry in 2024 to stabilize the insurance market. These reforms include clarifying bad-faith penalties, allowing rate changes without prior approval, rolling back the ‘three-year rule’ for insurance renewals, and supporting the Louisiana Fortified Homes program. The latter aims to strengthen homes against severe weather, similar to Alabama’s successful ‘Strengthen Alabama Homes’ program.
Positive Developments
Signs indicate the industry is improving: the Louisiana Department of Insurance has approved 10 new homeowners’ insurers since early 2024, and emergency assessments have been suspended. Average rate increases dropped to 6.6% in 2024 from 16.2% in 2022 and 14% in 2023. The number of rate increase requests decreased from 80 in 2023 to 50 in 2024, and there were no new insolvencies in 2024.
Recommendations for Further Improvement
To further enhance affordability, Louisiana should expand its Fortified Homes program and consider other mitigation measures such as securing chimneys and strengthening garage doors. Learning from Florida’s tort reforms, which limited unmerited litigation driving up insurance costs, could also be beneficial. The key strategy should be ‘mitigate, don’t litigate’ to reduce insurance claims and premiums.
Conclusion
While Louisiana faces significant challenges in its homeowners’ insurance market, legislative reforms and mitigation strategies offer hope for improvement. By continuing to strengthen homes and reduce litigation, the state can work towards making homeowners’ insurance more affordable for its residents.
