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What is causing Louisiana's insurance crisis, and what can fix it?

More than 20 companies folded or fled the state, and more than 100,000 policyholders are once again covered only by Citizens, and paying rapidly rising rates.

NEW ORLEANS — As Louisiana legislators moved forward this week with a $45 million fund to incentivize insurance companies to enter the Louisiana market, critics raised concerns that it wouldn’t go far enough to address the true cause of the crisis.

After Hurricanes Katrina and Rita, so many insurance companies folded or left the state that 173,000 property owners were forced to use the state-run insurance of last resort, Louisiana Citizens Property Insurance. By law, Citizens charges premiums set 10% higher than the highest private insurer in each parish.

By 2020, with competition restored to the private insurance market, only 35,000 properties needed coverage from Citizens. Then came the devastating losses from Hurricanes Laura, Delta, Zeta and Ida. More than 20 companies folded or fled the state, and more than 100,000 policyholders are once again covered only by Citizens, and paying rates that are 10% over market and rising rapidly.

Louisiana Insurance Commissioner Jim Donelon pushed for this week’s special session because he believes in the incentive fund, which the state first used in 2007. Then-Gov. Kathleen Blanco set up a $100 million fund. It only paid out $29 million to five companies, getting them to start writing policies again in Louisiana. That helped spark the competition that allowed homeowners, including Donelon himself, to replace their Citizens policies with cheaper, private coverage.

“My homeowner's policy went from $1,000 a month to $400 a month when I switched 10 years ago and 30-plus-thousand other people had the same experience,” Donelon said.

But the Florida-based private company Donelon used to insure his home went belly-up last year. He said that firm and a few others got “greedy” when they failed to buy enough reinsurance, the coverage insurance companies buy to protect themselves from losses.

State leaders and industry experts agree that reinsurance costs are driving the current crisis. Lloyd’s of London and other big players have raised their prices for reinsurance as catastrophic losses have risen around the globe and investors have recoiled.

The question now is whether Louisiana can do anything to ease the costs of a global reinsurance crisis, or if it should let the marketplace correct itself while doing some things to goose local competition.

State Sen. Kirk Talbot, R-River Ridge, chairman of the Senate Insurance Committee, passed a bill last year to revitalize the incentive fund started after Katrina. This week's special session juiced the fund with cash and set rules for distributing the money.

But former Insurance Commissioner Jim Brown and others question if the incentive program really worked as well as Donelon and Talbot claim, given that so many companies have now left.

“We tried it once. It didn't work. We're just reinventing the same problem,” Brown said.

Rather than pay companies to come into the state or expand their business here, Brown thinks Louisiana can help insurers who are already writing in Louisiana to pay for the rising cost of reinsurance. That's what Florida did last year.

“Florida has huge exposure: 85% of everybody in Florida lives within 50 miles of the coast,” he said. “So, they know they have to take some tough action. We do, too, but we're just not doing it.”

Florida has already dedicated $3 billion in taxpayer money to a reinsurance fund. Companies can apply for grants to offset the costs of purchasing reinsurance.

Florida State University Professor Charles Nyce said investors don’t want to back reinsurance right now because of heavy losses from catastrophes across the globe, including the California wildfires and floods in Germany. He said Florida’s fund is just a temporary fix until reinsurance rates come down.

Talbot thinks it's risky for Florida to subsidize reinsurance if those costs stay high. But he said it’s something a large state with a massive economy can probably afford, while it’s simply too expensive for a smaller, poorer state like Louisiana to get that directly involved.

Nyce and Talbot agree the best thing homeowners can do to lower their rates is to fortify their homes against storm damage. With that in mind, Louisiana created a grant program last August called Louisiana Fortify Homes, to pay homeowners to install fortified roofs, which use special shingles, stronger nails applied in a pattern, water-sealed decking under the shingles and locked-down edges.

“If you're building a new home and you want to put a fortified roof on, it's only 8% to 12% more than a regular roof,” Talbot said. “But the money you save on your premium, you'll pay for that in no time.”

In 2011, Alabama became the first state to provide grants for fortified roofs. Insurance industry studies have found it reduced homeowners’ premiums by 40% or more in two coastal counties, Mobile and Baldwin, while also greatly reducing damage from hurricanes there.

Realtor Brian Dickinson, who is based in Destrehan, said a fortified roof grant program is a great idea for lowering insurance premiums, but Louisiana took too long to adopt it.

“I wish this was in place before all of us had new roofs installed post-Ida,” he said. “I am one of them.”

Dickinson said he’s been losing home sales recently because of exorbitant insurance rates, and the biggest factor in how those rates are set appears to be the age and strength of the roof.

Zack Young, a justice of the peace in Luling, had to replace his roof after Hurricane Ida tore it off in 2021. That was before Louisiana implemented its Fortify Homes program. Having a new roof that wasn’t fortified didn’t protect him from a massive rate increase when his insurance company, Americas Insurance, folded last year and Cajun Underwriters took over his policy for 2023.

His premium went from $1,600 a year to $5,500 annually, which nearly doubled his house note.

“When you're seeing increases to this extent, I don't think you can justify it,” he said.

“You trust those in charge to give you straight answers and to protect you,” Brown said. “And that seems to be not being done right now.”


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