Insuring a home costs more, and not just because of hurricanes

LAFAYETTE – Louisiana homeowners are paying more for their property insurance this year, and not just because of hurricanes.

Insurers are paying more for insurance, too.

That’s from Louisiana Insurance Commissioner Jim Donelon, who has been on his annual "Storm Tour," reminding residents to make sure their coverage is in order before the peak of hurricane season.

Elsewhere, federal officials and international insurers are taking actions that can have an impact on how much you pay to protect your home against natural disasters.

Donelon, who was preparing Friday to drop in on a Louisiana Municipal Association meeting in Lafayette, offered two bits of advice:

--Understand your homeowners policy, particularly provisions related to a relatively recent development, the hurricane deductible.

Those deductibles are the amount you must pay before your insurance company will begin paying for your losses.

Pay particular attention to your coverage of household contents. Donelon said homeowners often underestimate the value of what's in a home and what it will cost to replace those contents.

--Take advantage of your cellphone's capability to video carpeting, televisions, appliances -- "anything that can be damaged in flood," Donelon said. The documentation can be invaluable when it's time to settle up with your insurer.

Louisiana homeowners saw their premiums increase an average of 6.7% after five consecutive years of 1% increases, Donelon said.

This year's hike showed the lagging impact from the horrendous 2020 hurricane season, when Laura, Delta and Zeta, all major hurricanes, hammered Louisiana's coast. Laura hit the Lake Charles area and points north with 150 mph winds, and Zeta, the weakest of the three, was a Category 3 storm.

Then came Ida, another 150 mph hurricane that landed at Port Fourchon last year.

Together, Donelon said, those four storms caused damage to privately insured property estimated at $22.7 billion from 800,000 claims.

Another source of upward pressure on insurance premiums isn't a flood or hurricane, although it is largely offshore.

It's the global reinsurance market, two-thirds of which is outside the United States and unregulated.

Reinsurance is a kind of insurance for insurance companies. The companies buy coverage that can cover their losses after unexpectedly large payouts from events such as hurricanes or floods.

Along with the severe tropical weather in 2020 and 2021, the cost of reinsurance helped drive the 6.7% increase in home insurance premiums, Donelon said.

Flood insurance is becoming another headache for federal officials and homeowners who are required by their mortgage companies to buy the coverage if they're in flood-prone areas.

Until 2021, National Flood Insurance Program premiums had been averaged at the ZIP Code level, largely according to a measure called the base flood elevation.

But starting with new policies in October and renewals as of April, FEMA is using a new system called Risk Rating 2.0, in which rates are based on the situation for individual properties.

Theoretically, the system can be more fair because each homeowner pays according to the risk for his or her own property. It also gives the federal government some leverage to require remediation, such as increased elevation, when it comes time to rebuild improvements after a flood.

Rate determinations will now include factors such as flood frequency; whether flooding is caused by river overflow, storm surge, coastal erosion or heavy rainfall; the distance to a water source; and property characteristics such as elevation and the cost to rebuild.

Those premiums now average $766 a year, according to FEMA, to cover 4.8 million properties with a covered value of nearly $1.3 trillion.

Donelon quoted FEMA figures that say:

--20% of properties covered by the NFIP will see premiums decrease.

--70% will see premiums increase up to $120 per year.

--7% will see premiums rise by up to $240 per year.

--3% will see premiums go up more than $240 a year.

The NFIP authorization currently contains an 18% cap on annual premium increases.

U.S. Sen. Bill Cassidy, R-Baton Rouge, argues that the new system will hit flood-prone Louisiana harder. The Lake Charles American Press quoted Cassidy at a February town hall as saying premiums will rise enough to lead 20% of NFIP policy-holders to drop their coverage.

That means fewer people will share risk, he said.

Cassidy, along with Bob Menendez, D-N.J., introduced legislation to delay implementation of Risk Rating 2.0 pending further study.

"For some, premiums may become unaffordable and could collapse the value of their homes," Cassidy said in a September speech on the Senate floor.

"These costs will be borne by middle class families. This clearly violates the president’s pledge not to increase costs on people making less than $400,000 a year.

"Congress never passed any law requiring that FEMA implement Risk Rating 2.0. President Biden alone is respon-sible. As president, he should direct FEMA to delay implementation of Risk Rating 2.0 if not reconsider it altogether. At the end of the day, flood insurance should be affordable and accessible."

FEMA says the NFIP is currently $20 billion in debt. Other sources say the debt is as high as $24.6 billion.