Louisiana Citizens Insurance Corp., the state’s insurer of last resort, wants to raise its already-high prices by more than half, following a dramatic increase in demand for coverage after eight private insurers collapsed and nearly a dozen others exited the state.
The organization has asked the Louisiana Department of Insurance for a 63% rate increase for personal property coverage, which would hit its more than 102,000 homeowners policies, records show. If approved, the rate increase could generate as much as $158 million that officials say is needed to cover their risk.
The last rate increase Louisiana Citizens received, by comparison, was 4.8% for new and renewing policyholders. It went into effect June 1.
The wave of hurricanes that began in 2020 triggered a chain of events that’s putting more pressure on Louisiana’s troubled insurance marketplace. Several insurers, crippled by a staggering number of claims, have gone out of business or pulled out of the state. They’ve left behind desperate consumers who are now flocking to Louisiana Citizens in numbers not seen in years.
Richard Newberry, the CEO of Louisiana Citizens, said the request is mainly because of a rising cost of reinsurance — insurance policies for insurers. The reinsurers, which typically operate abroad and assume the risk from insurance companies, are not regulated by the state and can charge what they wish.
Newberry said reinsurers have soured on the Gulf Coast after the run of storms and are now charging higher prices, leaving less money available for other claims.
“Eighty-nine cents of every dollar that we take in now will go to reinsurance,” Newberry said. “Think about that — you just have 11 cents left to try and pay your fire claims or anything other than a storm claim, and operating expenses.”
In the last year, Louisiana Citizens has seen its policy count nearly triple in size from the 36,000 policies it held before Hurricane Laura struck. Newberry said the increased volume plays a factor in the steep rate request but he emphasized the role of reinsurers.
What’s more, Louisiana Citizens is legally required to charge its customers at least 10% more than the highest rates any private insurer is charging in a given parish. Lawmakers, who created Louisiana Citizens as a safety net in 2003, did not want it to compete with private insurers.
“This is all by statute,” Newberry said. “We can’t be the cheapest.”
The LDI will weigh the request over the coming weeks.
The homeowners’ rate filing follows a similar move by Louisiana Citizens earlier this year with its commercial policies. In July, Louisiana Citizens quietly requested a 72.4 % rate increase on some 3,800 businesses with commercial coverage. The LDI approved the request, and the higher prices will go into effect Nov. 1.
The potential boost in homeowners coverage has already generated concern among lawmakers. Although the Legislature approved a raft of bills aimed at consumer protection last session, the troubles facing Louisiana Citizens did not surface until afterward.
“I haven’t seen any conversations about homeowners insurance and how, if people can’t afford it and can’t get it at all, they’re just going to leave,” said state Rep. Mandie Landry, D-New Orleans.
“If no one can afford it, what’s the point here? This is a lot more catastrophic than worrying about the next storm if massive amounts of people can’t get homeowners insurance.”
The vulnerable lower half of the state relies on the state insurer the most. The largest number of policyholders are in Orleans, Jefferson and St. Tammany parishes — all population centers that border bodies of water.
Landry said the critical nature of insurance for southeastern Louisiana and other coastal areas should warrant a federal intervention, similar to what happened with flood insurance after 1965’s Hurricane Betsy. That idea is also not without its critics: The National Flood Insurance Program has been awash in red ink for years, prompting the federal government to roll out a controversial plan to charge so-called actuarially sound rates.
Today, thousands of NFIP policyholders are receiving steep rate hikes as federal officials finally carry out their plan, now under the name Risk Rating 2.0.
An LDI spokesperson said Insurance Commissioner Jim Donelon will reveal next week a plan to migrate more policies away from Louisiana Citizens and back to private insurers. Donelon has previously mentioned restarting an incentive program designed to attract more companies to the state.
“We have plans in place to depopulate Citizens, and have significant interest being shown by companies that are anxious to get those policies out of Citizens,” Donelon told a small group of people at a town hall meeting in Jefferson Parish Monday night, WVUE-TV reported. “(These are) solvent companies that are looking forward to doing business — competitive business — with each other in the property insurance market, even below I-10 and I-12.”
In the years after Hurricane Katrina, the Insure Louisiana Incentive Program was created with $100 million. Five insurers signed up for the money and agreed to write homeowners policies in south Louisiana. But at least one of those firms, Southern Fidelity, was among the eight companies that went belly up after the recent storms.