Louisiana lawmakers confront property insurance crisis

To revive Louisiana’s imploding property insurance industry, state lawmakers are meeting this week to consider spending $45 million to entice insurers to the hurricane-battered state.

Lawmakers must act fast, said Louisiana Commissioner of Insurance Jim Donelon (R).

“If they don’t do something, like fund this program, then literally thousands of people will lose their homes,” he said.

People in wildfire and hurricane-prone areas nationwide are having a tougher time finding affordable property insurance as natural disasters grow more frequent and costly. Insurers are struggling as the price of reinsurance — essentially insurance for insurance companies — soars, as reinsurance companies grapple with rising catastrophe losses.

For Louisiana, as well as Florida, it is a crisis.

Several major Gulf Coast hurricanes since 2020 have saddled insurers with billions of dollars in claims, primarily for wind damage. Premiums are rising, small insurers are going out of business, and hundreds of thousands of people have been forced to seek coverage from state insurers of last resort.

“Any coastal state that has hurricane exposure, which is the entire Gulf Coast and most of the Atlantic seaboard, has the potential to have these problems,” said Jeff Albright, CEO of Independent Insurance Agents and Brokers of Louisiana, which advocates for insurance agents in the state.

Eleven insurance companies serving Louisiana have gone out of business since 2021, including some with business ties to Florida, according to an October report from the Louisiana Legislative Auditor’s office. Other insurers are refusing to serve new customers.

Louisiana Citizens Property Insurance Corporation, a nonprofit created by the state to serve people who can’t get insurance elsewhere, now holds over 125,000 policies and charges home insurance premiums of over $17,000 for some coastal properties, according to the audit and the nonprofit’s rate filings. Citizens is required by law to charge higher premiums than private companies so it does not compete with them.

“It’s a crisis like nothing else I’ve experienced, with the possible exception of the aftermath of Katrina,” Donelon said. “But I think it’s an even greater crisis today than it was then.”

Florida and Louisiana leaders are trying to address the problem. Florida Gov. Ron DeSantis (R) convened lawmakers twice last year for special sessions to address the property insurance crisis in the Sunshine State. Among other changes, in December they eliminated one-way attorney fees for insurance claims, which have fueled lawsuit schemes in the state.

During Louisiana’s special session this week, lawmakers will debate whether to spend some of the state’s nearly $1 billion surplus on a grant program. Donelon and key lawmakers say a similar approach helped rebuild Louisiana’s insurance market after Hurricanes Katrina and Rita in 2005 and could do the same now.

Donelon said seven companies have already reached out to his staff to ask about the proposed grants. “They are interested and ready and willing to start writing [insurance policies] when the program is turned on,” he said.

Under the program, which lawmakers approved but did not fund last year, companies would qualify for grants of between $2 million and $10 million. They would have to put up matching funds equal to the grant amount, write insurance premiums of at least double the sum of the grant and matching capital, and write at least 50% of those premiums for policyholders in southern Louisiana.

About half a dozen companies took advantage of an almost identical program after Hurricanes Katrina and Rita, said Sen. Kirk Talbot (R), chair of the Senate Insurance Committee, and insurers are interested in participating this time.

“What that’ll do is that’ll start competition,” he said. “That’ll get people writing, that’ll get people out of Citizens, and hopefully stabilize premiums and stabilize the market.”

Donelon and key lawmakers say a similar approach helped rebuild Louisiana’s insurance market after Hurricanes Katrina and Rita in 2005 and could do the same now. But some academics closely following the issue say the incentive program is a band-aid solution that could end up subsidizing financially shaky companies.

The post-Katrina grant program subsidized “fly-by-night” insurance companies that didn’t have enough capital, said Jesse Keenan, an associate professor of sustainable real estate at the School of Architecture at Tulane University. The program’s relaunch is “a stop-gap that’s actually going to probably create more problems in the long run,” he said.

Democrats are concerned the grants could be a giveaway.

“There must be accountability and transparency to ensure that the incentive program helps Louisiana residents and does not become a cash grab for big insurance companies,” House Democratic Caucus Chairman Sam Jenkins wrote in a statement posted to Twitter.

Talbot said this time the companies that get state money will face higher capital requirements and will be closely supervised to make sure they have enough reinsurance. Lawmakers also will consider a bill this week that would ban leaders of insurance companies licensed in Louisiana that have filed for bankruptcy or been declared insolvent from receiving the grants.

Louisiana lawmakers will consider other ideas for stabilizing the insurance market during the regular session this spring. Business groups will be pushing for reduced regulations, including allowing insurers to set rates without the Department of Insurance’s approval.

“We’d rather have companies here charging whatever they think they need to charge, with the idea that over the long haul competition will moderate pricing,” Albright said.

Donelon said he opposes such a change. “I’m not ready to go there yet,” he said, “and my reasons I’ll share with the legislature when the bill is heard in April or May.”

Lawmakers also may do more to tighten building codes and fund grants to help people upgrade their roofs.

“That’s the future … to have a fortified roof on every building in Louisiana,” Talbot said. “But that’s going to take some doing to get there.”

The turmoil in the state’s insurance industry, while painful, could over time help Louisiana adapt to climate change, Keenan said.

“In the long term it’s going to allow shifting settlement patterns, and technology, like building codes,” he said. “It’s going to help the market adapt.”