Max Dorfman, Research Writer, Triple-I
Severe hurricane damage in recent years has led to large losses for Louisiana homeowners insurance writers and the insolvency of eight insurance companies.
Louisiana homeowners insurance companies had a total cost of 461.9 in 2021. Combination ratio represents the difference between insurance claims and expenses paid and premiums collected by insurance companies. A combined ratio below 100 represents an insurance gain and a ratio above 100 represents a loss.
With an earned premium of nearly $2 billion, the total value of 461.9 means the industry experienced an insurance loss of $7.2 billion in 2021. As Triple-I Chief Insurance Officer Dale Porfilio puts it, “It would take 24 years to achieve a combined ratio of 85 for Louisiana homeowner insurance writers to return to positive profitability.”
In 2020, hurricanes Delta, Laura, and Zeta all caused major damage, resulting in a large number of insurance claims. Through September 30, 2021, there were 323,727 insured claims of all types for these storms. Insurance companies paid or reserved $9.1 billion for Laura alone. Additionally, Hurricane Ida, which occurred in 2021, generated 460,709 insurance claims of all types through June 30, 2022, with insurers having paid or reserved $13.1 billion for that storm.
Eight Louisiana homeowners have already become insolvent, and at least 12 companies have filed notices of withdrawal with the Louisiana Department of Insurance, a preliminary step required to leave the state. This has forced tens of thousands of homeowners to rely on the state’s last-resort insurer, the Louisiana Citizens Property Insurance Corp.
The market is struggling so much that Louisiana Insurance Commissioner Jim Donelon has called the current circumstances a “crisis.”
In response, the Louisiana Insurance Guaranty Association (LIGA) has begun restructuring its handling of claims for policyholders of insolvent insurers using property valuation technology from Verisk, a global data analytics provider.
“Seamless coordination with independent adaptation companies has become critical as we work to help hurricane victims throughout Louisiana rebuild their homes and return to normal,” said LIGA Executive Director John Wells.
More work to do
A 2020 Triple-I consumer survey found that 27 percent of homeowners said they had flood insurance, indicating a record high. However, this figure is higher than the National Flood Insurance Program (NFIP) estimates. As Triple-I notes, homeowners may not understand what flood protection is and how it works — specifically, that flood damage is not covered by standard homeowner’s and renter’s insurance policies. Flood protection is available as a separate policy from the National Flood Insurance Program (NFIP), which is administered by the Federal Emergency Management Agency (FEMA), and from many private insurance companies
As storms continue to cause extensive damage in vulnerable areas, homeowners and flood insurance are more important than ever. But risk transfer alone is not enough.
“Risk transfer is just one tool in the resilience toolbox,” said Triple-I CEO Sean Kevelighan. “Our understanding of loss trends and expertise in assessing and quantifying risk must be joined at the hip of technology, public policy, finance and science. We must collaborate with communities and businesses at all levels to advance a broad resilience mindset focused on preventative mitigation and rapid recovery .”