More than a year after Hurricane Ida swept across Louisiana, the Category 4 storm is sparking a property insurance crisis in the state that has bankrupted 11 insurance companies and will force some homeowners to pay nearly $18,000 in annual premiums.
In addition to the bankruptcies, 10 insurers have left the state, others are refusing to write new policies, and many insurers are refusing to insure vulnerable properties, including homes with roofs more than 10 years old, according to officials and documents.
The Louisiana crisis could get worse as insurers begin paying out tens of billions of dollars in damage from Hurricane Ian in Florida. Although Ian didn’t hit Louisiana, many Louisiana insurers are also underwriting policies in Florida, where they are facing huge losses.
“Most of the market we have is these small, specialized homeownership companies on the coast. Most do business in Florida and Louisiana, so they just got beat up,” said Jeff Albright, CEO of Independent Insurance Agents and Brokers of Louisiana.
“I’ve been in the insurance business in Louisiana for almost 45 years and I would call this the worst insurance crisis of my time in the business,” Albright added.
The problems in Louisiana are similar to those that have been building in Florida over the past three years, where interest rates are soaring as insurers leave the state — but with one major difference.
Florida insurance losses prior to Hurricane Ian were largely due to litigation brought by homeowners and home repair companies. Insurers in Louisiana are drying up on claims filed after a series of four hurricanes in 2020 and 2021, including two Category 4 storms.
“We have more frequent and severe storms,” Albright said.
Within a year of August 2020, Hurricane Laura, a Category 4 storm, struck Louisiana, followed in quick succession by Hurricanes Delta and Zeta, both Category 2.
Hurricane Ida in 2021 was the fifth costliest natural disaster in the United States since 1980, according to NOAA, causing extensive damage in the densely populated eastern half of Louisiana and as far north as New York and New Jersey.
According to the Insurance Information Institute, an industry-funded research group, the four hurricanes in Louisiana caused an estimated $22 billion in insured losses.
The costs resulted in part from the Covid-19 pandemic and supply chain issues, which drove up labor and material prices, according to an October report by the Louisiana Department of Insurance.
The recent losses almost rival the $28 billion in damage claims in Louisiana from Hurricanes Katrina and Rita in 2005.
But the most recent hurricanes came after Katrina transformed the Louisiana insurance market, driving out large national insurers that could absorb huge losses. They have been replaced by smaller regional insurance companies that lack reserves to deal with catastrophic losses and rely on reinsurance, which is becoming increasingly scarce and expensive. Reinsurance is coverage that insurance companies buy to make up for catastrophic losses.
According to the Insurance Department, 11 non-life insurance companies went bankrupt between July 2021 and September 2022. Insurers collectively wrote 185,000 policies, accounting for 13 percent of the state total.
“These were small regional insurers that were undercapitalized and vulnerable to significant storm damage,” said Mark Friedlander of the Insurance Information Institute.
Louisiana now has one of the highest insurance rates in the United States. The average homeowner’s policy in the state costs $3,300 compared to the national average of $1,544, Friedlander said.
The bankruptcies have sent an avalanche of people to the state’s property insurer of last resort: Louisiana Citizens Property Insurance Corp., which plans massive rate hikes starting January 1 and warns it can’t weather another big storm.
In less than a year – from November 2021 to August 2022 – the number of policies written by Louisiana Citizens nearly tripled from about 40,000 to 112,000. The surge reversed more than a decade of decline when the state lured private insurers back to Louisiana.
The state insurance department approved rate hikes for Louisiana citizens in October that will increase premiums by an average of 63 percent when policies are renewed beginning in 2023.
Rates will more than double in two communities — Vermilion on the coast and St. John the Baptist west of New Orleans — and reach astronomical levels on the coast.
In the Jefferson Parish shoreline, Louisiana citizens will charge an average of $17,623 for homeowner coverage, up from the current average of $11,286, according to the Citizens tax return. The average premium in the coastal community of Plaquemines will increase from $7,407 to $13,570.
The median household income in Jefferson Parish is $56,300.
Astronomical as they are, rate hikes may be insufficient, according to the latest Insurance Department report.
Citizens doubled its reinsurance coverage to $1.2 billion, but still “may not have adequate reinsurance to pay claims if a major hurricane occurs,” the report said.
A storm similar to Hurricane Ida “would cause approximately $2.4 billion in damage and exceed Citizens’ reinsurance coverage,” the report said.
If Louisiana Citizens cannot pay claims, it can charge insurance companies a surcharge equal to 10 percent of their total premiums. Insurers can pass the assessment on to policyholders.
Martin Grace, risk and insurance expert at Temple University, said reinsurance costs are rising around the world because reinsurance companies operate globally and face unprecedented losses from natural catastrophes.
“There’s all these different requirements for reinsurance, and the money goes to the highest bidder,” Grace said. “The areas with the highest risk will drive up reinsurance prices.”
Albright of Insurance Agents Group said the result was that “coastal homeowners” [insurance] Companies cannot get as much reinsurance as they need.”
Rate hikes by Louisiana Citizens and private insurers are causing homeowners to gamble by scaling back coverage so they can afford insurance.
“Some people just write their coverage with no wind [damage], take the risk and rebuild at their own expense if they have to, or seek government assistance,” Albright said. “There’s a problem across the country that people are underinsured.”
Louisiana and Florida are unique in having statewide insurance crises. California is also facing rising rates and lower availability, but only in areas prone to wildfires.
In Texas, where Hurricane Harvey caused more than $100 billion in damage in 2017, much of the damage was due to flooding, Grace said. Homeowners insurance typically doesn’t pay for flood damage, which is covered by separate insurance policies usually underwritten by the Federal Emergency Management Agency.
Albright said Louisiana and other coastal states could face an insurance catastrophe if hurricanes continue to wreak havoc.
“If South Carolina gets beaten two or three times, they’re going to have a problem in the end, just like we have a problem,” Albright said.