In recent years, the relentless fury of intense hurricanes has dealt a severe blow to the stability of Louisiana homeowners’ insurance sector. The repercussions have been profound, resulting in significant losses for insurers and the unfortunate insolvency of eight insurance companies. The dire situation has raised concerns about the future of insurance coverage and the financial security of homeowners in the state.
In 2021, the combined ratio for Louisiana homeowners’ insurers reached a staggering 461.9. This crucial metric, which represents the balance between claims, expenses, and premiums, serves as a stark indicator of the financial strain the industry has been under. A combined ratio exceeding 100 signifies losses, and with a ratio of 461.9 coupled with nearly $2 billion in earned premiums, the industry suffered a staggering $7.2 billion underwriting loss last year.
Dale Porfilio, Chief Insurance Officer of the Triple-I, encapsulated the gravity of the situation by noting that it would take an unprecedented 24 years of consistently achieving a combined ratio of 85 for Louisiana’s homeowners’ insurance writers to even begin to regain positive profitability.
The devastation brought about by hurricanes in 2020, including Delta, Laura, and Zeta, led to a torrent of insurance claims. These storms resulted in a whopping 323,727 insurance claims of various types through September 2021. For Hurricane Laura alone, insurers paid out or reserved a total of $9.1 billion. Adding to the burden, Hurricane Ida struck in 2021, generating a staggering 460,709 insurance claims through June 2022, with insurers having paid or reserved $13.1 billion for this single storm.
The gravity of the situation is evident in the fact that eight Louisiana homeowners’ insurers have succumbed to insolvency, and at least 12 other companies have initiated withdrawal notices to Louisiana’s Department of Insurance in an attempt to exit the state. This unfortunate turn of events has left tens of thousands of homeowners with no choice but to rely on the state’s last-resort insurance provider, the Louisiana Citizens Property Insurance Corp.
The severity of the crisis prompted Louisiana Insurance Commissioner Jim Donelon to label the current conditions as nothing short of a “crisis.”
In response to the urgent situation, the Louisiana Insurance Guaranty Association (LIGA) has embarked on a mission to revamp its claims management for policyholders of insolvent insurers. Employing innovative assets estimating technology from global data analytics provider Verisk, LIGA is striving for seamless coordination with independent adjusting companies. This effort is aimed at efficiently supporting hurricane victims in their journey to rebuild homes and reclaim normalcy.
Despite the alarming circumstances, a 2020 Triple-I Consumer poll revealed that 27 percent of homeowners claimed to possess flood insurance—a notable increase. However, this figure surpasses estimates from the National Flood Insurance Program (NFIP). This discrepancy highlights a lack of understanding among homeowners about flood coverage and its critical importance. Many are unaware that flood damage falls outside the scope of standard homeowners’ and renters’ insurance policies. To address this gap, flood coverage is available as a separate policy through the NFIP, administered by the Federal Emergency Management Agency (FEMA), as well as through numerous private insurers.
As the intensity and frequency of storms persist, the significance of homeowners and flood insurance grows even more pronounced. However, merely transferring risk is insufficient. According to Sean Kevelighan, CEO of the Triple-I, risk transfer is just one facet of a broader resilience strategy. A holistic approach encompassing loss trends analysis, risk assessment, technology, policy, finance, and science is essential. Collaboration with communities and organizations at all levels is crucial to foster a comprehensive resilience mindset rooted in proactive mitigation and swift recovery. As Louisiana navigates these turbulent waters, a multi-faceted approach remains the key to weathering the storms ahead.