Why did homeowners insurance go up in Louisiana?

Wed Apr 19 2023

A pink Victorian house in the Garden District of New Orleans

Homeowners insurance in Louisiana is some of the most expensive in the nation. In fact, the Insurance Information Institute puts the average premium at $2,037 per year, earning the Pelican State the number one spot for home insurance costs. If that wasn’t enough to cause alarm, then recent reports Louisiana homeowners insurance rate increases certainly may.

Why are insurance rates so high in Louisiana? And why are they going up? Here are three key factors:

  • High reinsurance costs.
  • Record-breaking hurricane seasons in 2020 and 2021.
  • Inflation’s impact on repair costs.

Any one of these factors could make getting affordable home insurance in Louisiana difficult. But all three hitting at roughly the same time explains why many believe the state is in the middle of an insurance crisis.

Reinsurance costs increasing

Most experts agree that high reinsurance costs are driving Louisiana homeowners insurance rate increases. Reinsurance is often described as “insurance for insurance companies.” Much like you transfer some of your risk to an insurer by buying its policy, an insurance company transfers some of the risk it takes on by getting reinsurance.

Reinsurance is essential for any company that wants to offer home insurance in catastrophe-prone areas like Louisiana. Unfortunately, changing weather patterns have increased the frequency and severity of storms, and that has resulted in more expensive claims. That, in turn, causes reinsurers to charge higher premiums that insurance companies have to pay if they want to continue to offer coverage to homeowners in Louisiana.

Record-breaking hurricane seasons

Closely tied to the rising cost of reinsurance are the Atlantic hurricane seasons of 2020 and 2021 when Louisiana was hit by four hurricanes, each a Category 2 or higher. Altogether, these four storms were responsible for nearly $22 billion in insurance claims in the state.

| — | — | — | | Hurricane | Category | Louisiana insurance claims cost | | Laura | Category 4 | $9.1 billion | | Delta | Category 2 | $875.5 million | | Ida | Category 4 | $10.9 billion | | Zeta | Category 3 | $629.3 million |

These two record-breaking hurricane seasons may have been enough to make reinsurers rethink what they charge for their coverage. But reinsurance is a global industry, so catastrophic losses in other parts of the world also affect reinsurance premiums. Sadly, the number of billion-dollar disasters has increased fivefold in the last 50 years, due in large part to climate change.

You may be wondering why rate increases are a problem in Louisiana now rather than two years ago. In part, it’s because both insurance companies and the reinsurers they work with set their rates based on predictions made using historical data. Information from the storm only recently impacted that data.

Please note: What we’re discussing here are rates insurers file with state regulators, not individual premiums. Large numbers of catastrophe claims occurring more frequently often means higher reinsurance costs for your insurance company, which then files for a rate increase. That rate is then applied to all policies. Other traits, like location and home value, are factored in to come up with your premium.

Inflation’s impact on repair costs

All insurance companies have to price policies so they have enough money in the bank to cover their policyholders’ claims. However, the amount of money it takes to repair a home isn’t set in stone. Inflation can significantly affect construction costs – as we saw when lumber prices skyrocketed in 2021 – and that often means insurers raise rates so they can meet their obligations.

Luckily, inflation appears to be easing, which is good for construction costs. Veririsk’s Reconstruction Cost Analysis shows costs increased just 3.1% between April 2022 and April 2023. That’s down from the 6.8% increase from January 2022 to January 2023.

What’s a little less lucky is that insurance companies have to decide their rates based on past information. Essentially, insurers can’t adjust their rates for decreasing costs until it appears in their data.

Are insurance companies pulling out of Louisiana?

Another sign that there’s trouble brewing in the Louisiana home insurance market is the number of insurance companies pulling out of the state. As of early February 2023, over 20 insurance companies have either gone insolvent or withdrawn from Louisiana, including well-known insurers like:

  • Gulfstream Property and Casualty Insurance Company.
  • Southern Fidelity Insurance Company.
  • Fednat Insurance Company.
  • Bankers Speciality Insurance Company.
  • United Property & Insurance Company.

Less competition is seldom good for prices, but fewer companies willing to sell homeowners policies has forced many to turn to Louisiana Citizens Property Insurance Corporation. Operating as a public-private partnership, Louisiana Citizens is considered an insurer of last resort – there to cover people who can’t get insured in the private market.

But the coverage from Louisiana Citizens isn’t cheap. State law requires its rates be 10% higher than the highest private insurer in each parish, and the Louisiana Department of Insurance (LDI) recently approved the company’s request for a 63% rate increase on residential properties.

Cost may be the immediate concern for Louisiana homeowners, but risk exposure should be as well. Louisiana Citizens now covers over 100,000 policyholders . That’s a lot of potential claims should the state see another record-breaking hurricane season.

What’s being done about Louisiana homeowners insurance rate increases?

The first steps towards heading off an insurance crisis were taken in February when the LDI funded the Insure Louisiana Incentive Program. This program encourages insurance companies to take part in Louisiana’s voluntary home insurance market by offering matching grants to write new policies in the state.

In April, the LDI announced insurance market reforms geared in part towards stabilizing home insurance rates. Central to the reforms is the Louisiana Fortify Homes Program that encourages homeowners to strengthen their roofs against hurricane wind damage for premium discounts. Additionally, the LDI has proposed legal and claim process reforms in the hope of attracting more insurers to the state.

What can Louisiana homeowners do to reduce insurance costs?

Any reform the LDI proposes will likely take some time to create the change Louisianan homeowners are looking for. In the meantime, you can take steps to harden your home against risk by:

  • Retrofitting your home so it complies with the State Uniform Construction Code.
  • Installing hurricane shutters and impact-resistant windows and garage doors.
  • Investing in fire alarms, security systems, and water monitoring devices.

You may also be able to lower your premium by:

  • Asking about discounts. Insurance companies often use premium credits and discounts to encourage behaviors that reduce risks or minimize their costs.
  • Raising your deductible. A higher deductible often translates into a lower premium, but only choose an amount you know you can pay even in a catastrophe.
  • Comparing rates. Every insurance company has its own method for determining rates, so premiums can vary quite a bit.

If you do decide to shop around for a new policy, be sure to look at more than just the premium. Take a look at the coverage amounts, deductibles, and other policy information so you can decide if you’re getting your money’s worth. For more information, check out our article on how to compare homeowners insurance companies.

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