Storms put more pressure on La. insurance market

As Hurricane Ian targeted southwest Florida’s people, property and that state’s already shaky insurance market Wednesday, Louisiana has taken steps that made coverage here, the state’s insurance commissioner said.

But another Ida-sized hurricane would probably make the state’s insurer of last resort, state-run Citizens Property Insurance Inc., seek an assessment from private insurers and ultimately to property owners, Commissioner Jim Donelon told a St. Mary Chamber luncheon at the Petroleum Club of Louisiana.

The Advocate reported Sept. 13 that Citizens is asking the Louisiana Department of Insurance, which Donelon heads, for a 63% increase in homeowner premiums. That
follows a 74% increase in commercial property premiums that takes effect Nov. 1.

“Lots going on in my world,” Donelon said.

Louisiana had made some progress in attracting small, regional insurance companies to the state since Katrina’s catastrophic property damage, he said.
Katrina losses also led Louisiana Citizens management to seek funds from private insurers, the last time the corporation used that remedy.

Louisiana persuaded Wall Street to buy into a $1 billion bond issue for Citizens. To offset the exodus of major insurers from Louisiana, then-Gov. Kathleen Blanco pushed for $100 million from the post-Katrina influx of federal money to be available for an incentive program, Donelon said.

The program offered $6 million in capital to small, regional insurers who agreed to match the state money with $6 million of their own. The companies were also required to commit to writing $24 million in Louisiana property insurance, including property in the 17 most vulnerable coastal parishes and property covered by Citizens. The incentives attracted five companies, Donelon said.

Louisiana raised the capital requirement for companies covering Louisiana residential property from $3 million to $10 million.
Donelon said the idea was to make the insurers more conservative as they buy “reinsurance” — essentially insurance bought by insurers to protect themselves against large losses. Reinsurance is purchased through a market that is largely offshore and unregulated.
In all, 30 companies were recruited to cover property in Louisiana.

The idea was to move homeowners out of Citizens coverage and into the private market, Donelon said. The number of property owners covered by Citizens fell from 173,000, or 10% the Louisiana market, to 35,000.

Then came Laura, Delta and Zeta in 2020 and Ida in 2021. Donelon said the storms resulted in 800,000 claims and $23 billion in damage.

The number of Citizens policy-holders is back at 100,000 and is rising by about 500 a day, the commissioner said.

After five straight years with 1% annual increases in homeowner premiums, premiums went up an average of 6.5% this year, Donelon said. Ida led to the closure of six of the regional insurers, eight in all, and the departure of others from the state.

On top of the problems with conventional homeowner coverage, the state also faces rising National Flood Insurance rates under the new assessment system called Risk Rating 2.0.

The federally backed system changed the way it assesses risk. Instead of identifying risk, and setting premiums, for all property in a ZIP Code, the new system rates the risk for properties individually.

The result has been sharp premium increases for some, although an 18% cap on annual premium increases remains in place.

On Wednesday, U.S. Rep. Clay Higgins, R-Lafayette, announced that he is introducing legislation to “allow insurers to deduct the cost of providing homeowners insurance and policy payouts following a federally declared disaster.”

“My bill would incentivize property insurance providers to remain in the state after a major disaster,” Higgins said in a press release.

“Further, because insurance is largely regulated at the state level, I am hopeful that our bill can also serve as a model for similar legislation in the Louisiana State Legislature.”